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Bank of England opens money pumps again
The Bank of England injected a further £5 billion in weekly loans into the interbank market Thursday. The move, following a £5 billion injection of 3-day loans on Monday - which saw demand from banks outstrip supply by a factor of almost five - is the latest attempt by the Bank to ease the ongoing credit crunch. Thursday's operation, which allows those banks who took up Monday's offering to rollover their loans, was three times oversubscribed.
But given that overnight rates have generally remained above base rate, markets in effect have been telling the Bank that its measures to ease the current liquidity problems, have, so far, been insufficient. The Bank has said, however, that it will continue to offer the additional weekly funding until its interest rate setting committee next meets on April 9th/10th, at which time it will decide on whether to sanction another cut in interest rates.
The Bank's latest initiative came as representatives from the Big 5 banks (HSBC, RBS, Barclays, Lloyds TSB and HBOS) were meeting BoE officials in what has been described as a 'regular exchange of views' and characterised as routine.
The meeting followed Thursday's early share price rout of HBOS, which subsequently forced the bank into denying it was seeking emergency funding from the BoE. BoE press officers then took the unprecedented step of contacting news organisations to rubbish market rumours that a major bank had sought a meeting with the Bank to discuss its funding. Indeed, no such meeting had been arranged nor were any intended.
Meanwhile, City watchdog, the FSA (Financial Services Authority), said it would launch an inquiry into market abuse in response to the unsubstantiated - and false - rumours that had been put out in the market claiming HBOS was in trouble.
Given this week's events therefore, Thursday's meeting will likely have been far from routine. Indeed, behind the closed doors Britain's major banks will probably have told BoE officials in no uncertain terms that more needs to be done to ease liquidity problems in the markets.
Also likely to have been high up the agenda is the issue of market abuse and what to do about short-sellers putting out false rumours to drive down share prices and cashing in accordingly.
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