Bank of England Offers £40 billion to Struggling Banks

The Bank of England is to launch another intervention into the faltering financial markets with an offer of at least £40 billion to cash-starved banks. The Bank usually offers loans on a monthly basis, but will hold auctions every week from Monday while the problems in wholesale credit markets remain.

The Bank of England has not revealed the amounts involved in future auctions, but they will probably be of a similar size to Monday’s if lenders snap up the funds.

Mortgage Lenders are raising loan costs because of a sudden escalation in the rate at which banks lend money to each other – as many hoard funds. Interbank three-month lending rates jumped to 6.28% on Thursday, well above the Bank of England’s 5% base rate.

Despite the Bank of England’s move, the 700 billion US dollar bail-out of the US banking system is likely to have a bigger effect in easing liquidity problems in the UK financial markets.