Money-Market Rates Double Amid Global Credit Seizure (Gavin Finch, Kim-Mai Cutler)

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Pile o' Money

Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled to the highest since 2001 as the collapse of Lehman Brothers Holdings inc. and credit downgrades of American International Group Inc. led banks to hoard cash.

The overnight dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump, according to the British Bankers' Association. The rate was 2.19 percent a month ago and 2.15 percent last week. Lehman filed for bankruptcy yesterday after succumbing to mounting credit-market losses.

The credit squeeze deepened after American International Group Inc.'s debt ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening the company's efforts to raise emergency funds. The biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital, according to two people familiar with the situation.

"It's fear, you don't know who has exposure and who might not be getting their money anymore," Imke Jersch, a senior money-market trader in Hanover at Norddeutsche Landesbank Girozentrale AG, Germany's fourth-biggest state-owned bank. "It's a domino effect. You never know who might fall next."