By one measure, it appears the Fed's whatever-it-takes policy towards backstopping the financial sector is inspiring some confidence among lenders. The TED spread has returned to levels not seen since the failure of Lehman Brothers.
The TED spread, a gauge of banks’ willingness to lend, slipped below 150 basis points for the first time since before the collapse of Lehman Brothers Holdings Inc. amid speculation U.S. borrowing costs near zero and promises of further government cash will help unfreeze credit.
Central banks are pumping money into the financial system to combat the worst economic slump since the Great Depression. Credit markets, which seized up after Lehman’s bankruptcy, remain locked amid almost $1 trillion in losses and writedowns tied to mortgage-related securities. The Federal Reserve cut its benchmark rate to as low as zero last week and said it will flood the economy with cash.
The TED spread may be better but it's still around 148 basis points, well above the 38-point spread it averaged in the year prior to the credit crisis' start in August 2007, Bloomberg notes. So it may not be exactly back to normal, but the improvement so far is welcome.