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Bank warns emergency borrowers
Chris Giles and Peter Thal
Larsen
Financial
Times
Friday Aug 31, 2007
The Bank of England has warned financial institutions authorised
to use its emergency lending facility that they are not supposed
to discuss it publicly.
The warning came after it announced on Thursday that the facility
had been tapped for a second time since turmoil gripped global
money and credit markets.
On Wednesday, one or more banks borrowed £1.55bn ($3.13bn)
overnight from the central bank, reigniting fears that UK banks
faced severe liquidity difficulties and sending sterling and money
markets sharply lower.
The overnight rate in the interbank market spiked higher to 6.13
per cent, almost 0.4 percentage points higher than the Bank of
England’s official 5.75 per cent rate. The pound initially
fell 0.5 per cent to $2.0046 against the dollar before recovering
ground to close slightly up in London at $2.0160.
(Article continues below)
But the fears in the market appeared to be groundless last night.
It is understood that the lending facility was used for operational
reasons and not because a UK-based bank faced a sudden shortage
of sterling.
The amount borrowed was large but the circumstances were understood
to be of a technical nature. At the end of June other technical
problems led to nearly £4bn being borrowed using the same
facility.
The Bank of England stands ready to lend unlimited amounts at
a rate of 6.75 per cent, one point above its official rate, in
a facility that has been used 14 times already this year.
On Wednesday afternoon, the link between Crest, the UK settlements
house, and the Bank of England’s electronic settlements
system, broke down for an hour, potentially interfering with banks’
transactions. Crest said that it had extended the deadline for
settlements by an hour in order to clear any backlog, and had
not received any complaints.
Use of the Bank of England’s reserve facility, which goes
largely unnoticed in calm markets, has been the subject of intense
scrutiny in recent weeks as investors search for signs of financial
distress. Last week, Barclays was drawn into an embarrassing dispute
with HSBC, its UK rival, after being forced to borrow £314m
from the reserve facility.
After the central bank’s warnings to users not to
comment publicly, all the UK banks contacted by the Financial
Times yesterday declined to comment.
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INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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