Bank loans ВЈ10bn to lenders

The Bank of England (BoE) has loaned UK lenders an additional 10 billion in funds, as it seeks to mitigate the impact of the global credit crunch. Financial institutions bid for the cash during an auction, with 75 per cent of bids allotted at the lowest 5.36 per cent rate of interest, the BBC reports. The rate agreed for the majority of the loans is lower than the official benchmark interest rate of 5.5 per cent set by the Bank.

It is one of five central banks which have together agreed to inject an extra $100 billion ( 49 billion) into the money markets in order to tackle the ongoing credit crisis. Along with the Bank of England, the US Federal Reserve, Bank of Canada, European Central Bank and Swiss National Bank have confirmed they will each pump additional reserves into their respective banking systems in order to increase the availability of credit.

It is hoped the pledge to provide fresh loans to the world’s banks will boost liquidity in wholesale money markets, encouraging financial institutions to begin lending cash to each other at affordable rates again. Banks have become increasingly reluctant to make credit available to other financial institutions in the wake of the global credit squeeze, prompted by rising default levels in the American sub-prime mortgage market.

This in turn has been exacerbated by uncertainty about the extent to which finance groups are exposed to problems in the specialist property sector. Concerns are mounting that if inter-bank lending rates remain high, steeper borrowing costs could be passed on to consumers thus leading to a potential slowdown in economic growth. Today’s auction of cash by the BoE comes after the US central bank offered $20 billion ( 10 billion) to lenders yesterday, in a similar loan sale.