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October 4, 2007

Confidentiality keeps bidders away from BoE auction

by Gill Montia

Story link: Confidentiality keeps bidders away from BoE auction

For the second week running UK banks have preferred not to borrow any of the £10 billion that is being offered for auction by the Bank of England (BoE), in an attempt to ease the credit crisis.

It is reported that banks, anxious over issues of confidence, have borrowed instead from the European Central Bank (EBC) because their actions will remain anonymous.

In addition, the BoE three-month loan facility carries a penal interest rate of 6.75% and at the time of the auction, this rate was above the three-month London Interbank Offered Rate and substantially higher than the 4.63% rate set by the ECB when it auctioned £35 billion of three-month money last week.

Experts agree that the lack of demand for Bank of England funds also indicates that no UK financial institution is experiencing the level of liquidity deprivation that has afflicted Northern Rock.

The word in the City is that UK banks are taking advantage of the funds available from the ECB, but not on a large scale.

Over 1,600 banks have permission to borrow from the ECB, which does not identify the borrower’s country of origin.

The British Bankers’ Association yesterday called for the same level of confidentiality in the UK.

Angela Knight, the Association’s chief executive has pointed out that Northern Rock crisis may have been averted if the BoE, the Financial Services Authority and the Treasury had explained publicly that borrowing by banks was not a cause for concern.

 

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