Banks shun BoE £10bn auction

by Gill Montia

Story link: Banks shun BoE £10bn auction

Yesterday’s £10 billion auction by the Bank of England failed to attract any bids.

Last week’s decision to release the money left the bank’s Governor, Mervyn King, being accused of a U-turn.

He had previously stated that it was not the job of the Bank of England to inject cash into the money markets.

However, following the Northern Rock crisis, the bank made the decision to ease the liquidity crisis by holding three auctions, each a week apart.

The word in the City is that issues of confidence were at stake meaning that banks and financial institutions were reluctant to borrow any of the £10 billion, in case their identity should be revealed.

Also to be taken into account is the rate of interest borrowers would have to pay.

The Bank of England is charging a penal rate of 6.75% and this compares with the three-month London Interbank Offered Rate (the rate charged by one bank to lend to another) of 6.35%. The rate for overnight money is around 5.75%.

Yesterday, bidders had from between 11.00am and 11.30am to apply for some of the funding.

However, a spokeswoman for the Bank of England has confirmed that the £10 billion is still available.