Thursday, 20 September 2007

Bank of England doubles emergency loans available to British banks

If you or I make stupid investment or borrowing decisions and it goes bad then we have to pay the price. If it happens to a big bank then us taxpayers step in to help. If the whole system is that shaky the whole system SHOULD collapse and then maybe we could replace it with something that works to the benefit of all not just the owners of banks!

The Bank of England on Tuesday doubled the amount of emergency loans made available to British banks caught short in the global credit squeeze - curbing a surge in overnight borrowing costs but fueling criticism that the bank governor was reversing his own policy against bailouts.

The central bank lent £4.4 billion, or $8.8 billion, at its benchmark interest rate of 5.75 percent and said it would offer the same amount Thursday in seven-day loans to help strengthen confidence in the financial system.

The step followed a surge in the overnight lending rate that banks charge each other, to 6.47 percent, the highest level in four months and a sign that lenders were still unsettled by repercussions of the U.S. mortgage market turmoil and remained reluctant to lend. The overnight rate subsided to just over 6 percent.

The action was intended to protect the British economy from choking on rising borrowing costs. The economy has grown in recent years on the back of a flourishing financial services market and record consumer debt.

Pressure on the Bank of England governor, Mervyn King, to act increased after customers withdrew billions of pounds in savings from Northern Rock, a British mortgage lender that faced a liquidity shortage after credit markets had dried up. Shares of other British lenders, especially those with similar business models, also started to fall.

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