The Bank of England announced this afternoon that it would attempt to flood banks with cheap cash in order to stave off tensions in the interbank credit markets, according to Dow Jones.
This report followed rumours of coordinated central bank action to bolster liquidity across the world, however the BOE’s plan appears to be much more U.K.-centric.
Speaking at a black tie dinner, BOE’s Mervyn King and the Exchequer’s George Osborne said they would initiate a two-pronged attempt to aid liquidity conditions:
- Multi-year loans at below-market rates to banks (something like the LTROs, perhaps?) in order to support U.K. banks and households
- An emergency liquidity facility that will offer U.K. banks six-month loans in return for as yet unspecified kinds of collateral.
The DJ report notes that there are no signs as yet that U.K. banks are experiencing funding problems. However, it does not come as a surprise that U.K leaders are worried about deteriorating credit conditions and deposit flight—particularly from the euro area periphery—spilling over onto British shores.