Tuesday, Aug 21, 2007
No SubPrime here - This is Britain where we do things in a proper manner!
Bloomberg: Bank of England Loaned Money at Penalty Interest Rate
The Bank of England said its emergency lending facility was tapped for the first time since the U.S. subprime mortgage crisis prompted other central banks to inject liquidity into financial markets.
The U.K. central bank said it loaned 314 million pounds ($628 million) from its standing facility at 6.75 percent yesterday.
Posted by tyrellcorporation @ 11:31 AM (1537 views) Add Comment
17 Comments
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1. mrmickey said...
I'd love to know who the bank was just in case I've got some savings with em.
2. Realist said...
To be fair, they also did this on 2nd July and 17th July before the credit market blew up. It is therefore difficult to tell whether this was an emergency situation or normal market stabilisation activity.
3. tyrellcorporation said...
Me too! Any of you finance bloggers know?
4. Orwell said...
The central banks at this time are not really in control
Oh dear oh dear.
Northern Rock.
5. mrmickey said...
It looks like it could be Northern Rock but they denied it was them, well they would wouldn't they.
6. Ah-so said...
With the commercial paper market apparently imploding, we are going to see a lot more funding shortfalls over the months ahead.
7. European Bear said...
Did anyone read in the Sunday Times Money section that A & L have been hit by a multi million pound mortgage fraud involving BTL mortgages for new build flats? Could be A & L that needed some help...
8. Captain Sensible said...
Mortgage fraud - we should be seeing alot more of that with suggestions that lots of BTL investors lied on mortgage applications. Don't know if they realise just how serious a criminal offence this is. On the positive side, if the demand for domestic building declines there'll be work around building all of those new prisons to house these new criminal classes.
9. enuii said...
EB, most of us noticed that story and I personally found it strange that it was not reported anywhere else in the media.
10. robh said...
Can wise bloggers clarify for me:
These 'liquidity injections' are loans, at a slightly higher rate, from central banks, to lenders who have no spare cash as they don't trust each other not to go bust while its loaned between them. If one of them does in fact go bust, the central bank loses the money, which is whose money? The tax payers is it?
And these hedges, and 'insurance type thingies', that they took out to cover the dodgy deals, that may go belly up, what are they doing all this time? Does the central bank that loans and loses have a claim on these (not that they are able to pay up presumably)?
There are so many loops a humble physicist cant understand it!
11. Orwell said...
Presumably domestic Insolvency Law applies in whichever country the central bank and the bank they are loaning to reside. Here, the Insolvency Act applies and there is a statutory order for payment of debts. secured creditors (land) will be near the top and therefore a central bank that didn't lend on this collateral would be foolish. The Govt. would have to justify their actions in lending any unsecured credit, and they would want to know that the bank was actually technically solvent as well (i.e. can meet their liabilities) otherwise the bank would be trading whilst insolvent and in doing so committing a Criminal Offence. No Bank will say they are wrongfully trading (the crime) though will they?
Last we heard didn't we was that Servyn Mervyn didn't know what the exposure was of these banks?
What concerns me is the BOE should know what the liabilities of these banks are to their hedge funds because they are in a supervisory role and have a statutory duty to ensure that the bank has the balance sheet capability to meet its lending book. This came about after the 1973/4 liquidiity crisis (due to borrowing short and lending long) that appears to have faded into the mists of time. The Banking Act 1979 was passed and whilst falling short of expectations was at least a start. This was followed by the Johnson Matthey problem in late 1984. This was again due to over exposure and again seems to have passed into the mists of time. The Banking Act 1987 was then passed which was supposed to ensure that there was reporting of large exposures.
Quite where that reporting is, and indeed has been is simply a mystery to me.
David Smith?
David? ......... David?
Ok then, Gordon as you are the one who will have to make a bolt for the polls at some point.
12. voiceofreason said...
@robh
Being a humble engineer myself, I agree with your take on these financial gizmos.
I believe that tax pounds go into Treasury coffers, whereas the BoE is merely responsible for managing the value of those pounds by controlling the amount in circulation (inflation & financial stability).
Therefore the BoE loses the bad loan money that is not covered by collateral offered. But it is the BoE's money anyway, because they created the pounds electronically. So the net effect is to deflate the economy a bit by removing some money out of circulation..... I think ?
There must be more to it in order to discourage people to borrow from it as a lender of last resort.
Interesting Wikipedia entry
http://en.wikipedia.org/wiki/Lender_of_last_resort
13. voiceofreason said...
Bit more here
http://www.domain-b.com/finance/banks/2007/20070816_lenders.html
It seems that banks have a covenant with the central bank. So in effect, I guess they have some money on deposit with the central bank already.
Hedge funds on the other hand ....
14. Alan said...
Could be Grampian (HBOS).
15. denzil said...
I've been watching Northern Rock for some time and have posted about them on here a couple of times in the last week or so. I could be them but I'm not totally convinced. If sub-prime problems "really" take hold here they may be interesting to watch. They keep announcing profit warnings and are very exposed.
Watch somebody leap to their defence!
16. Orwell said...
From Forbes:
The Bank of England refused to confirm the identity of the borrower, but one analyst who wished to remain anonymous said that many obvious candidates had denied taking out the loan, including Northern Rock (other-otc: NHRKF - news - people ), Alliance & Leicester (other-otc: AANCF - news - people ), HBOS (other-otc: HBOOY - news - people ) and Bradford & Bingley (other-otc: BDBYF - news - people ). Bigger banks such as Barclays (nyse: BCS - news - people ), Lloyds TSB (nyse: LYG - news - people ) and HSBC (nyse: HBC - news - people ) refused to comment.
Strangely, the Wall Street Journal think its Barclays?
17. Su said...
Quote from updated article above
"The Wall Street Journal reported on its Web site today that Barclays Plc was the borrower"