Banks' most pressing problem

[dipsydoodle]

Robert Peston : BBC

A shortage of capital is a big issue for banks, as I've been blathering on about for days (and see my note of this morning on our banks' meeting with the chancellor and request for a capital injection from taxpayers).

Man watching share price on screenBut the really urgent issue is the breakdown of wholesale markets, and the increasing difficulty that almost all banks are having in funding themselves on a day-to-day basis.

The basic problem is that the collapses of Lehman and Washington Mutual have made all financial institutions wary of lending to any bank where there is even a scintilla of risk.

It turns out, therefore, that Hank Paulson and the US Treasury were probably wrong in allowing them to fail.

continues............

http://www.bbc.co.uk/blogs/thereporters/robertpeston/