UAE to lend money to Dubai banks

Last week, investors fled the stocks of banks with outstanding loans to the tiny emirate and its investment arm, Dubai World. Now, analysts will be watching to see whether investors desert other highly indebted companies. While Dubai is not big enough to set off financial repercussions outside the Middle East, the main fear is that investors could flee risky markets all at once in search of safer havens for their money. As in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions, they might pull back, regardless of the markets’ strength. Those fears were allayed only after the United States announced a huge bank bailout and began guaranteeing a variety of borrowing that slowly helped credit markets begin functioning again. That many of these measures remain in place could help contain any problems from Dubai now.

A fear of contagion from Dubai would further destabilise European banks that were only starting to mend.