BoE auction oversubscribed by £24.4bn

by Gill Montia

Story link: BoE auction oversubscribed by £24.4bn

The Bank of England’s weekly auction of funds was oversubscribed again this week by bank’s struggling with the lack of liquidity in the money markets.

Following last Friday’s meeting between Mervyn King, the governor of the Bank of England, and the heads of leading UK banks, the central bank agreed to supply an extra £5 billion every week until 9th April.

Last week the auction was oversubscribed by £19 billion. Today £13.6 billion was made available but it soon became evident that this was only around one-third of the £38 billion that British banks wanted to borrow.

The news adds to concerns that the liquidity crisis is worsening, which is also evident from a rise in Libor, the rate at which London banks are prepared to lend to each other.

The three-month Libor rate has exceeded 6%, its highest level since December of last year.

The funds auctioned by the Bank of England are borrowed at the base rate level of 5.25%, meaning that those banks that need to borrow more are doing so at the more punitive Libor rate.