Bank of England: no bids received for second emergency 3-month tender

The offer of emergency funds from the Bank of England was shunned by commercial banks and building societies.

The central bank said it received no bids in its 10 billion pound (US$19.9 billion; EUR14.1 billion) three-month loan auction, an outcome widely expected after a similar tender last Wednesday failed to attract any takers.

The bank announced the series of auctions of emergency funds last month in a move designed to ease the strain in wholesale money markets, which seized up in early August on fears of dwindling credit.

The tenders were designed to ensure that banks did not suffer a similar crisis to that of mortgage lender Northern Rock PLC, but analysts said the minimum penalty interest rate of 6.75 percent offered by the bank has deterred borrowers.

Interbank lending rates soared to 6.9 percent a couple of weeks ago as banks became increasingly reluctant to lend to rivals while not knowing the extent of their exposure to the U.S. subprime market collapse.

However, the three-month so-called LIBOR rate has since dropped back and now stand at 6.3 percent - well below the rate being offered by the central bank although still above the official base rate of 5.75 percent.

Analysts have also said that Northern Rock's experience has ironically likely deterred others from publicly seeking funds, rather than encouraged them. Customers withdrew billions of pounds of their savings from the mortgage lender, leaving it facing collapse, after it revealed it had applied to the central bank for emergency funding.

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Author`s name Angela Antonova