Libor falls as BoE adds £5bn to monthly auction

by Gill Montia

Story link: Libor falls as BoE adds £5bn to monthly auction

The Bank of England has raised the amount of money it will auction this month, by £5 billion.

On 16th April the bank will auction £15 billion in three-month money, compared to the £10 billion made available (and oversubscribed) in March.

The increased sum is additional to the £5 billion the Bank has been auctioning each week.

The news was followed yesterday by a fall in the London inter bank offer rate (Libor), from 5.95% to 5.93%.

Libor is the interest rate banks charge to lend to each other and its historically high levels for three month money have been at the heart of the credit squeeze, reflecting a lack of confidence in the money markets.

The heads of leading UK banks are currently negotiating with Mervyn King, the Governor of the Bank of England, regarding the type of assets the bank will accept as collateral.

In April, the range of collateral accepted by the Bank will remain the same as from December of last year, when it was extended to include highly-rated residential mortgage-backed debt.

The US Federal Reserve has allowed American banks to use a wide range of mortgage-backed securities as collateral and UK bankers would no doubt like the Bank of England to follow the Fed’s lead.