Bank Of England Offers Emergency Loans To UK Banks

Wed, 19 Sep 2007

The Bank of England has offered a significant amount of cash to UK banks to bolster the financial system, saying it received "intelligence'' that demand for money may delay a surge in overnight borrowing costs, following the collapse of Northern Rock Plc.

The central bank yesterday offered a £4.4 billion loan (additional funds) at its benchmark interest rate of 5.75 per cent in London, and is expected to offer the same amount on September 20, it said in a statement .

The money is intended "to help to offset the disturbance to conditions in the short-term money markets'' after the bank extended a rescue credit line to Northern Rock last week.

The Bank of England, which initially refused to follow other central banks in lending additional funds, has now stepped up its efforts in assisting money markets, insisting it is battling to protect the British economy from a surge in borrowing costs and a collapse of confidence in the banking system in the wake of the Northern Rock disaster.

Chancellor of the Exchequer Alistair Darling vowed to guarantee all deposits at the lender in order to restrain a crisis of confidence.

The BOE said in a statement: "Secured overnight money market rates have again been unusually high, relative to the benchmark interest rate . This, together with intelligence from counterparties, suggests that there may have been a further rise in the demand for reserves.''
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