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British banks gorge on ECB's cheap credit


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British banks gorge on ECB's cheap credit

By Ambrose Evans-Pritchard, International Business Editor

Last Updated: 12:19am BST 02/10/2007

British lenders are shunning the Bank of England and turning instead to the European Central Bank on a massive scale, taking advantage of much lower interest rates and guaranteed anonymity to weather the credit crunch.

EU sources say Britain's banks have been clamouring for money in Frankfurt, accounting for a substantial chunk of the €190bn (£132bn) lent last week in the ECB's variable tender operation. "It is fair to say they have been borrowing from the ECB on a very large scale. It's cheap, so why not," said one official.

The UK banks were also major subscribers at the €50bn issue of three-month loans on September 27 at 4.63pc, and the earlier tender of €75bn on September 13.

Hans Redeker, currency chief at BNP Paribas, said British reliance on ECB funds has become to big that it is leaving a clear footprint in the currency markets, forcing up sterling on the days following ECB tenders as the banks switch euros into pounds – typically Thursdays, Fridays, and Mondays.

"There's been a huge amount of borrowing. It is causing movements in the euro-sterling exchange rate that do not make any sense otherwise. It is why the pound shot up in early September when the liquidity crisis was in full swing and there was nothing to justify this," he said.

"The money markets may look as if they are functioning again in Britain, but in reality they are not," he said. Mr Redeker believes the key motive in going to Frankfurt is the certainty of secrecy, rather than the lower interest rate.

"Nobody wants to take up the Bank of England's three-month tender because of the stigma. They will be punished immediately by the markets," he said.

While the Bank of England says it will not publish names, there are concerns that the British press will unearth the story somehow. It is safer to stick to Frankfurt, where the ECB does not even reveal the nationality of banks coming to the window -- masking the picture.

The German press has reported that Barclays Capital in a major borrower at the ECB tenders. The bank has declined to comment.

Any British lender with a branch in the euro-zone can use the ECB facility, provided it meets the rules and offers the right collateral -- which includes mortgage-backed securities. The Bank of England was much more restrictive in the early phase of the credit crunch.

Full story, Source: The Telegraph

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British banks gorge on ECB's cheap credit

By Ambrose Evans-Pritchard, International Business Editor

Last Updated: 12:19am BST 02/10/2007

EU sources say Britain's banks have been clamouring for money in Frankfurt, accounting for a substantial chunk of the €190bn (£132bn) lent last week in the ECB's variable tender operation. "It is fair to say they have been borrowing from the ECB on a very large scale. It's cheap, so why not," said one official.

The UK banks were also major subscribers at the €50bn issue of three-month loans on September 27 at 4.63pc, and the earlier tender of €75bn on September 13.

Full story, Source: The Telegraph

Thats a lot of quick, easy money and at the same time the same banks are charging us for our accounts, ignoring victims of fraud and not paying interest on our cash. Buggers.

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Thats a lot of quick, easy money and at the same time the same banks are charging us for our accounts, ignoring victims of fraud and not paying interest on our cash. Buggers.

That happens when someone kind of wants "part" of an organization but not its entirety, it creates problems that did not exist previously.

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