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Banks shun second Bank of England money auction

Banks have shunned the Bank of England’s second £10bn money auction, it has emerged.

This is the second time the Bank of England has run an auction in an attempt to ensure that lenders did not follow in the footsteps of Northern Rock’s funding crisis.

Reports in the Daily Telegraph suggest that UK banks have been going to the European Central Bank for loans where they have the advantage of much lower interest rates and guaranteed anonymity.

£132bn (EURO 190bn) was apparently lent last week in the ECB’s variable tender operation.

There has been criticism in the market that the 6.75 per cent interest rates offered by the Bank of England are too high. It is also understood that there is still too much stigma attached to these loans which has turned off buyers.

Inter-bank interest rate currently stands at 6.3 per cent.

The Bank of England announced its offer of three-month loans at the height of the crisis surrounding Northern Rock on September 19.

It still plans to go ahead with another two auctions on the 10 and 17 October.

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