More aid for Rock as squeeze predicted
NORTHERN Rock appears to have borrowed another £2.7bn from the Bank of England this week amid signs of a further tightening in financial markets.
The embattled mortgage lender’s debts are now thought to total more than £29bn, according to analysis of the Bank of England’s latest balance sheet figures.
The news comes as the Bank of England announced it would pump £10bn of extra funding into the banking system to head off a new year credit market freeze.
Banks are becoming increasingly reluctant to lend to each other, sending daily interbank lending rates soaring yesterday for the 14th day in a row, to 6.59%.
Fears are mounting that the credit crisis could get even worse at the turn of the year as banks hoard money to tidy up their balance sheets for end of year reporting.
The Bank said it was making the funding available over a five-week period at the 5.75% base rate level to help ease the potential new year squeeze.
Fellow central banks in the US and Europe have also injected cash into financial markets to boost liquidity.
The bank said the cash was not being made available on an emergency basis, stressing the move was only to “alleviate concerns” over year-end money market conditions.
But Mervyn King, the bank’s governor, warned at a Commons treasury select committee hearing that there was “a big risk” that the collapse in credit markets would become more serious.
He told MPs a fear among banks, in the US in particular, was causing them to clamp down on interbank lending.
