CENTRAL BANKS are preparing to launch fresh interventions in money markets this week to avert a full-blown credit crisis after warnings by American analysts that up to $300 billion (£148 billion) of loans could be at risk.

Financial markets tumbled last week on fears of a looming credit crunch. The FTSE 100 is down almost 9% from its mid-June peak.

The European Central Bank, America’s Federal Reserve and other central banks injected $300 billion into the banking system within 48 hours in a bid to avert a financial crisis. They stepped in when banks, spooked by sudden and unexpected losses from bad loans in the American mortgage market, suspended normal lending.

The crisis in credit markets threatens a worldwide economic slowdown, bringing to a halt more than a decade of increasing prosperity and employment for Western economies. In a bid to head off a downturn, the Federal Reserve is expected to cut interest rates, with the European Central Bank likely to postpone rate rises.

The Bank of England, which last week signalled a rise in interest rates to 6% in coming months, is resisting pressure to cut the cost of borrowing. The Bank appears determined to use higher interest rates to push inflation back down to the government’s 2% target.

Andrew Sentance, a member of the Bank’s monetary policy committee, said in an interview with The Sunday Times today that “the most important thing in judging the inflation risk is the impact the global economy is having . . . we may have to lean in a different direction to keep the UK economy on an even keel.”

New American estimates suggest that the amount of loans at risk could be far greater than thought. Chris-topher Whalen, managing director of Institutional Risk Analytics, which builds risk systems for regulators and auditors, said there was between $250 billion and $300 billion at risk in collateralised debt obligations (CDOs), funds made up of risky junk bonds.

“The basic issue with these assets is whether they are in strong hands and not in the hands of someone who worries about what they read in the papers,” said Whalen. He described a lot of the buyers of CDOs as “spivs”.

There could also be big knock-on effects for banks, added Whalen. “This wave could be big enough to engulf commercial banks, too.” Mortage companies are under the most pressure; the shares of Countrywide Financial, America’s largest provider of home loans, fell on Friday after it warned it could face problems raising money.

The drying up of credit and falls in share prices are already having an impact on takeovers.

Five banks that underwrote KKR’s recent buyout of Alliance Boots have been able to syndicate the most junior tranches of debt only by accepting a stiff discount. “It went for 95p in the pound,” said one market dealer, who added that it was likely the discount had been sufficient to cancel out the banks’ underwriting fees.

There are fresh doubts over one of the world’s largest-ever takeover battles, the £48 billion contest for ABN Amro, the Dutch bank. Falling markets could disrupt efforts by a consortium led by Royal Bank of Scotland to raise sufficient cash to bid for ABN. Although RBS’s consortium partner Fortis received shareholder approval to raise €13 billion (£8.8 billion) last week, traders said the rights issue would have to be further discounted if conditions did not improve.

One insider said: “Fortis has to raise €13 billion in new equity, Santander has to raise €8 billion. Then RBS and Fortis have to raise a further €4 billion and €10 billion respectively. It’s not impossible, but it’s certainly harder to do in these conditions.” A rival bid for ABN by Barclays also faces turbulence. Barclays’ share price fell 7% on Friday while ABN Amro’s dipped almost 10% before rallying.

In America, securities regulators are understood to be checking the books at top Wall Street firms to make sure they are not hiding losses incurred in the sub-prime mortgage meltdown. The Securities and Exchange Commission is examining whether the firms used consistent methods to calculate the value of sub-prime mortgage assets.

Hedge funds have also been hit by the tumbling markets. There were reports that some funds at Highbridge, Man Group and DE Shaw were down by as much as 10% in the past 10 days.

Another said: “There is no discrimination. Investors are just saying ‘get me out of here’.”

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