Loan Facility Snubbed By UK Banks For Second Week Running

Wed, 03 Oct 2007

British Banks have again spurned a £10 billion loan facility from the Bank of England (BOE) for the second week in a row.

The offer of a three-month loan at a minimum penalty interest rate of 6.75 per cent (1 per cent above the base rate and around 0.5 per cent higher than the current interbank lending rate) was rejected by potential takers as they believed that the interest rates were too high, according to market analysts .

The three-month London Interbank Offered Rate (Libor) fell to 6.26 per cent, a slight drop from 6.28 per cent and a sharp decline from the 6.9 per cent witnessed last month, which was its highest rate in nine years.

The BOE loan offer, the first of its kind in the Bank’s history, was introduced last month in order to help ease the credit crunch in longer term money markets.

The move came during the Northern Rock crisis, which forced the Newcastle-based lender to turn to the central bank for emergency funding last month, causing wide spread panic from investors who feared for the safety of their deposits .

Northern Rock was hit by the soaring cost of borrowing on the wider money markets, on which it is heavily reliant upon to fund its mortgage loans .

Although company shares initially plunged due to the market turmoil, recent speculation surrounding a possible takeover has led to shares prices recovering.
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