Governments around the world have slashed interest rates and ramped up their lending to unprecedented levels, but banks are still charging each other extremely high borrowing rates -- a bad sign for the credit markets, which remain close to paralysis.

Traders will be monitoring the G-7 finance ministers meeting this weekend and hoping the officials will consider guaranteeing lending between banks -- which could potentially bring down the relentlessly high key lending rate known as Libor.

''That would go a long way for confidence,'' said Kevin Giddis, managing director of fixed income at Morgan Keegan.

The ministers also might consider collectively guaranteeing bank deposits, allowing central banks to become clearinghouses in cash-for-collateral transactions or creating a super sovereign wealth fund, said Tony Crescenzi, a Miller Tabak & Co. analyst, in a research note.

The London Interbank Offered Rate, or Libor, for three-month dollar loans jumped to 4.82 percent on Friday from 4.75 percent Thursday. A month ago, three-month Libor was at 2.82 percent.

Libor is the rate at which banks make unsecured loans to one another. Investors in the stock market, where heavy selling continued Friday, aren't going to get any relief until bank-to-bank lending rates come down. The rate is directly tied to many consumer loans, including adjustable-rate mortgages. If those rates rise, that means more mortgage defaults and foreclosures.

The difference between three-month Libor and the three-month T-bill yield swung to its widest level in more than 25 years -- indicating that banks are viewing loans to other banks as significantly more risky than government debt. The yield on the three-month T-bill fell to 0.21 percent from 0.58 percent late Thursday. The discount rate was also at 0.21 percent.

It's not that banks aren't lending at all. It's that they're doing so for shorter periods of time, to fewer borrowers and at higher rates.

''There's a lot of activity that's all been jammed up into overnight lending,'' said Lou Crandall, chief economist at Wrightson ICAP. This is tolerable for banks because they have a safety net from regulators, he said, but non-bank institutions are at risk.

That's because they have to constantly resell their debt every night or every couple of days, and if they're unable to do so on a given day, it could result in a big loss.

The tightness in credit could have dire consequences for the economy, which relies on borrowing and lending to grow. Governments and companies around the world have been feeling the effects and taking action. Canada, for one, said Friday it is buying up to $21 billion in mortgages from the country's banks to maintain the availability of credit.

In a positive sign, rates on commercial paper have been coming down from lofty levels, which is good for companies that rely on short-term financing from that market. Commercial paper is a type of debt that's either unsecured or backed by assets like mortgages. Companies sell it to get funding for maintaining payrolls, buying inventory and other operations.

Most top issuers on Friday were selling commercial paper with one- to seven-day maturities at rates of less than 1 percent, according to Morgan Keegan's Giddis. Longer-term commercial paper rates also were largely lower. Commercial paper for 30 days from American Express, for example, slipped to about 2.75 percent Friday, he said, while 30-day paper from General Electric slipped to about 2.5 percent.

''It could change in a moment's notice,'' Giddis said. ``But between last night and today, the flows that we've seen, the tone is a little better.''

On Thursday, the Fed said commercial paper outstanding dropped for the fourth straight week in the week that ended Wednesday. Commercial paper outstanding has fallen by 30 percent to a seasonally adjusted $1.55 trillion since the summer of 2007. The Fed announced Tuesday that it will be buying commercial paper to keep that market more liquid.

Overall, though, investors and banks alike still appeared very nervous, swarming to Treasury bills as the stock market posted its eighth daily loss.

Longer-term Treasurys, however, fell. Bond markets closed early Friday and will be closed Monday for Columbus Day.

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