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September 3, 2007

Barclays’ loan admission prompts SIV rumours

by Gill Montia

Story link: Barclays’ loan admission prompts SIV rumours

The Bank of England, which last week made a loan of £1.6 billion to Barclays, is under pressure to reveal further details of the transaction to quell rumours that the loan was in response to a liquidity crisis within Barclays itself.

The Bank of England is insistent that such transactions should remain confidential and financial analysts were surprised when Barclays admitted to being the borrower, despite the fact that a confidentiality clause usually forms part of such a loan agreement.

The confidentiality element is seen as important because it is there as an encouragement to banks to make an approach, rather than get into difficulties.

Barclays has attributed to need for the loan to technical difficulties in the UK’s clearing system, however, the British Bankers’ Association is reported to be consulting its members about Barclays’ actions in publicly confirming the loan.

This confirmation has resulted in intense speculation about Barclays’ investment banking division, which is experiencing difficulties with so called Structured Investment Vehicles (SIV), created for various hedge fund clients.

It is rumoured that these SIVs have almost collapsed because of the tightening of the financial markets in response to the US sub-prime mortgage crisis.


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