C.bankers worry over action plan

By Mike Peacock

LONDON (Reuters) - Top European central bankers expressed concern on Friday about the success of a concerted action plan to grease the wheels of seized-up money markets, as U.S. banking giant Citigroup faced fresh strife.

European Central Bank Governing Council member Klaus Liebscher said he was disappointed money market rates remained at 4.8 to 4.9 percent despite a planned liquidity injection by the world's major central banks.

"There is a certain concern that the money market is not coming down," Liebscher told reporters in Vienna.

His ECB colleague, Yves Mersch, said it was unclear if Wednesday's joint initiative to lower sky-high interbank lending rates would be enough to turn the corner.

"Whether it's sufficient to restore confidence remains to be seen," Mersch said at a news conference in Luxembourg.

"In the immediate aftermath dollar spreads in term funding reduced to some extent ... but are still at high levels," he said. "We are partly facing a confidence crisis among banks."

The Federal Reserve and counterparts in Europe, Canada and Britain announced joint action -- the Fed launched a temporary facility to let a wider number of banks borrow at favorable rates, and catered for affected foreign institutions via foreign exchange swap lines with the ECB and Swiss National Bank.

In response, money market rates edged lower but not by much.

Most London interbank offered rates (LIBOR) dipped on Friday for the second day in a row, but again only by a little -- the euro one-month rate fell only slightly to 4.93375 percent from Thursday's 4.93500 and two-week rates rose to 6-1/2 year highs.

ECB Governing Council member Nout Wellink said the credit crisis had now reached a "second wave", worse than the first.

"It is too early to tell whether the action will work," he was quoted as saying by Dutch newspaper De Volkskrant, telling another newspaper that if the first central bank injections proved insufficient, further action must be considered.

QUESTION OF TRUST

Most experts say the crunch, which first bit in August when interbank lending dried up as banks realized they did not know which was dangerously exposed to a U.S. subprime mortgage meltdown, would only end once they trusted each other again.

"The market has just dried up. The only way it will improve is if Bank A lends (to) Bank B again," one money market trader said. "It's very simple but very difficult. It's a question of trust."

Subprime mortgages -- lent to people ill-equipped to pay them back -- were bundled up into complex financial products and sold on around the globe.