Anorak News | Credit Cunch: Bank Of England Cheap Money for Business

Credit Cunch: Bank Of England Cheap Money for Business

by | 28th, September 2007

pick-pocket.jpgHOO boy, the knives are out for the Governor of the Bank of England at the moment, aren’t they? First there’s the Treasury and the Financial Services Authority (FSA) blaming him for the mess that Northern Rock got into…but hang about a bit, regulation is now the remit of the FSA. This is buck passing, not rational analysis. Then there’s this:

The Bank of England governor, Mervyn King, came under attack yesterday from Britain’s banks for his handling of the Northern Rock crisis as it emerged the central bank has increased its lending to the Newcastle-based bank to £8bn.

In a strongly worded attack, the British Bankers’ Association added to criticism from business leaders who said regulators were partly to blame for damaging confidence in the country’s financial system.

The BBA said it had warned of an impending collapse in the money markets months before the crisis hit Northern Rock. It said the crisis had also escalated following the Bank of England’s refusal to intervene with an injection of short-term capital into the money markets at discounted interest rates.

Hmm, well, which is the most important part of that statement? As the Cityunslicker points out:

Not so long ago we were reporting how Barclays and others were screaming for the Bank of England to pump liquidity into the system. Today the sorry tale went full circle: after much arm-twisting the BoE offered £ 10 billion of 3-month money to the markets at the ‘penal’ rate of 6.75 %. How penal is that ? Well, 3-month LIBOR peaked recently at around 6.7 %: so – not the kind of ‘penal’ interest-rate you and I recognize, (although obviously wholesale margins bear no resemblance to retail rates).

And how desperately was this liquidity needed ? yes, you guessed, not a single penny was taken. So – what the banks really wanted was a whole heap of cheap money. Now there’s a thing: we’d all have some of that!

Well, yes, it’s “discounted”. What a surprise, businessmen would like to get a subsidy from the taxpayers. My, how my heart bleeds for them when they don’t get it. As should yours, it’s your pocket they were trying to pick.

Posted: 28th, September 2007 | In: Money Comments (2) | TrackBack | Permalink