Bank of England auction fails
Published September 26th, 2007
British banks shunned the Bank of England’s auction of three-month money on Wednesday, submitting no bids to borrow the £10bn on offer.
Under the auction, banks were able to offer much lower quality collateral than normal for Bank of England cash, something that represented a U-turn for the central bank. It said it would continue with its plans for further auctions of three-month money at at least 1 percentage point above its official rate of 5.75 per cent to ensure a “safety valve†remained in the system.
A spokesman said: “The auction was designed as a safety valve in the light of concerns that arose about potential pressures in the banking system more generally as a result of Northern Rockâ€.
Interbank interest rates have fallen fast in the past week after the rescue of Northern Rock and the subsequent run on the bank. Three-month interbank Libor rates dropped to 6.32 per cent on Wednesday, well below the 6.75 per cent quoted rate on the day before the bank announced this facility last Wednesday.
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