$21 billion reserved for UK banks

29 November 2007

The Bank of England has said that it can loan commercial banks $21 billion with an extended repayment period in order to help them handle the credit crunch.

While the Bank usually offers banks loans for only a week, the latest round of emergency funds will be available for a five-week period.

Banks which require the funds will be expected to repay at the benchmark interest rate after money is allotted on December 6th.

The UK's central bank said in a statement that it wishes to "alleviate concerns that money market conditions will be particularly tight over the yearend''.

Speaking to the treasury committee, Bank of England governor Mervyn King said: "Given the continuing fragility in the banking system, there is a risk that markets will tighten toward the end of the year. We stand ready to take further measures to keep the overnight rate in line with bank rate.''

"This will reduce the uncertainty of funding across the yearend for some institutions, but we'd expect this to have a limited effect,'' Philip Shaw, chief economist at Investec Securities told Bloomberg. "The Bank should be doing more to avert the liquidity squeeze.''

The UK bank's move comes after the European Central Bank and the US Federal Reserve have already tried to curb market lending rates this week, as lenders tighten their purse-strings given the volatility of the financial market.

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