Banks still don't trust each other.

The rate banks charge each other for overnight loans surged to an all-time high of 6.88% on Tuesday after the U.S. government voted to reject a US$700-billion bailout plan for financial firms.

The London interbank offered rate, or Libor, which is set by 16 banks, rose the most ever, jumping 431 basis points. The Libor-OIS spread, which is considered a gauge of the scarcity of cash, also hit a record, widening to 246 basis points

"The money markets have completely broken down, with no trading taking place at all," Christoph Rieger, a fixed- income strategist at Dresdner Kleinwort told Bloomberg. "There is no market any more. Central banks are the only providers of cash to the market, no-one else is lending."