Skip to main content
No. of Recommendations: 1
The Bank of England’s auction of £10 billion of short-term loans to ease the liquidity crisis proved a flop yesterday when not a single bank or building society entered a bid.

The Bank came under fire last night from Richard Lambert, the CBI chief
, who said the run on Northern Rock was the kind of thing one expected to see “in a banana republic”. That it had happened “in a mature and prosperous country like the UK is almost unimaginable,” he said in a speech to business leaders in Northern Rock’s home town of Newcastle.


Bankers said that they had shunned the auction of three-month money because cheaper finance was now available in the commercial money markets and because of the stigma. Three-month Libor, the rate at which the banks borrow from one another was 6.34 per cent yesterday, considerably less than the minimum rate of 6.75 offered by the Bank.


Two weeks ago banks were desperate for three-month loans because of paralysis in the interbank market but at that time the Bank believed offering credit would have encouraged reckless lending in future. It changed its mind last week, announcing four auctions of three-month money, and agreed to water down its collateral rules too.

The lack of bids in Threadneedle Street yesterday contrasted with the European Central Bank, which pumped another €50 billion (£35 billion) of three-month loans into the system: 159 banks applied for €85 billion of borrowings.


Northern Rock shares were marked 12 per cent higher to 182p as dealers reacted to Tuesday’s announcement that the bank had received several approaches. Banks including Citigroup, National Australia Bank and ING were seen as potential buyers, alongside private equity groups such as Cerberus Capital and JC Flowers.
Print the post  


This is a Politics Free Board
Politically charged posts are not permitted on the Metar Board. If you make a political post, and it is alerted, the post will be removed. Thanks!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.