In its Quarterly Bulletin, the Bank reported that after some improvement following the relatively smooth passing of the year end, bank funding markets became more difficult again during late January and February.
It blames the increasing Sterling Libor-OIS spreads and interbank term lending for the continuing stall in the wholesale market.
The Bank says: “This seemed to reflect renewed concerns about the scale of potential credit losses and write-downs facing banks, given further falls in global asset prices and the significant and synchronised weakening in international economic activity.”
It says, as a result, liquidity conditions have yet to normalise to any significant degree.
During February, Libor-OIS spreads, a litmus test for credit confidence in the markets, started to widen again and the term structure of forward spreads shifted up slightly. Bank of England contacts reported to it some increased reluctance to lend to banks beyond very short maturities as concerns over the health of balance sheets resurfaced internationally.
It says: “Residential Mortgage Backed Securities markets remained effectively closed, at least for publicly issued securities. In general, contacts did not expect a sustained improvement in market conditions during 2009.”