The Bank of England will offer $4.6 billion to banks this September, twice as much as in August after concerns over rising credit costs, Bloomberg reports.
Banks have been hesitant in lending money in between themselves due to the concerns of the effects of the US sub-prime crisis, and the Bank of England is yet to add money to any markets to soften the blow.
The bank will help commercial banks to maintain their reserve targets on the last day of the month, before it makes the decision on interest rates for the next month.
“The system has the liquidity that the bank sees as sufficient,” says Philip Shaw, chief economist at Investec Securities. “The problem is that banks’ refusal to lend means that markets have dried up. This suggests the banks have to do something.”
The central bank allows other banks to borrow unlimited funds at a rate of one per cent above the normal lending rate.
Barclays has dipped into this emergency fund in the last month, leading to speculation that the US sub-prime market had created a liquidity crisis.