Banks Reluctant To Lend A Helping Hand To One Another

Fri, 31 Aug 2007

UK banks are slow to offer loans to one another, according to new data from The Bank of England .

The bank yesterday issued a loan of £1.6 billion at its penalty rate of 6.75 percent, which has led to suggestions that commercial banks are still reluctant to lend to each other following the collapse of the US sub-prime mortgage market.

Yesterday's lending was the most under the standing facility since July 2, when the central bank lent £1.93 billion, according to the data, although it did not identify who the loan was made to or the number of borrowers .

Alan Clarke, a BNP Paribas economist in London, commented: "It is a massive number, but it's important to understand if it is a single institution or a number of borrowers ."

"It's not clear if this is going to increase people's risk aversion."

It was only 11 days ago when the facility was last tapped into by Barclays, borrowing £314 million.

The Bank of England – unlike the US Federal Reserve or the European Central Bank - has not auctioned any extra money or changed any of its lending rates .
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