Credit Crunch

Standing left to right – Mr. Dinesh Jebamani (Chief Manager Liability Product Management and New Age Media – Seylan Bank), Mr.Sudesh Peiris (Senior Manager – Digital Banking Channels – Seylan Bank), Ms. S.Senevirathne (Representative of the Revenue Department – Western Province), Mr. Tilan Wijeyesekera (Deputy General Manager – Retail Banking – Seylan Bank) and Mr. Malik Wickremanayaka (Deputy General Manager – Operations – Seylan Bank)

BASEL, October 23, 2008 (AFP) – Cross-border lending by banks fell 1.1 trillion dollars in the second quarter of 2008, the biggest decline for a decade, latest BIS figures showed on Thursday, underlining the severity of the credit crisis.

Banks were also hit by one trillion dollars’ worth of withdrawals, particularly by clients in the United States, Britain and Switzerland, according to figures compiled by the world’s biggest central banking body.

“In the second quarter of 2008, BIS reporting banks’ total international claims declined by 1.1 trillion dollars at constant exchange rates to 39.1 trillion,” said the Bank for International Settlements in its quarterly banking statistics review.

The scale of the contraction in lending far exceeded the only other two falls posted in the decade.

After the bursting of the dot-com bubble, lending declined by 125 billion dollars or 1.0 percent of the total. Meanwhile, following the demise of hedge fund Long Term Capital Management in 1998, lending shrank 1.2 percent.

Shaken by dramatic collapses of banking titans such as Lehman Brothers, banks have been reluctant to lend to each other, resulting in a freezing of the system.

Central banks have had to step in as last reso