MercoPress. South Atlantic News Agency

Barclays borrows from BoE standing lending facility

English banks are not absent from the credit crunch

Barclays was identified as the bank that borrowed £ 314 million (624 million US dollars) from the Bank of England's standing lending facility, the first time the financial instrument has been used since credit conditions deteriorated a month ago.

The Wall Street Journal, citing unidentified sources, reported on its Web site Tuesday that Barclays Plc was the borrower and the money was used to cover a shortfall in its account with the central bank. The bank's standing facility allows participants to borrow unlimited amounts of money but they must pay one percentage point above the base rate, which is currently at 5.75%. The facility was last tapped on July 17 for just over 100 million pounds and has been used 13 times since the start of the year. The amount borrowed on Monday was about average and well below the 3,977 million pounds borrowed via the facility in late June. However since the credit crunch the BoE hard-line approach contrasts with liquidity injections by the European Central Bank and the US Federal Reserve that have come at generously reduced rates. The BoE has told the market it offers standing facilities that allow emergency access to credit at a penalty rate. Turbulence in credit markets has made banks reluctant to lend to each other. Three-month sterling inter-bank lending rates have risen above 6.6% in recent days, testing levels last seen in the wake of Russia's debt default and the collapse of LTCM in 1998. Other major central banks have pumped liquidity into the financial system to ease lending conditions but the Bank of England has so far conducted business as usual. The ECB kicked off a series of interventions with ultra-cheap money on August 9, and the Fed last Friday lowered the rate on its discount window by half a point on Friday. On Wednesday the overnight rate charged by banks for pounds fell to 5.94% from 6.07% after the BoE statement, and the three-month sterling rate dropped to 6.62% from 6.65%. Meanwhile, it emerged that Britain's biggest high street banks have more than 120 billion US dollars (£60 billion) worth of exposure to the troubled asset-backed commercial paper market. Central banks are struggling to restore confidence as traders have fled money market funds, considered among the safest instruments, on concern that they have invested in risky collateralized-debt obligations backed by sub-prime mortgage loans and banks are reluctant to lend each other money.