When the Bank of England agreed to inject £10 billion of liquidity into the money markets, many accused it of wimping out. One moment it was saying it did not want to reward banks for their reckless ways and the next it’s printing money like there is no tomorrow. Even the Economist magazine talked about an extraordinary turnaround.

But here’s something even more extraordinary. The banks, which are supposed to be benefiting from the Bank of England loans, are saying, “No thank you.”

So that’s a relief then; the banks are doing so well, the liquidity crisis so very last week, that they don’t even need the handout. It’s not that much of a handout as the loans carry a 6.75 per cent interest charge.

The Bank of England explained the lack of enthusiasm by saying, “Since the announcement, there has been a significant fall in three-month interbank rates, which made the auction look expensive.” Even so, it is still pressing ahead with plans to supply more money, via auctions in three separate waves throughout October.

But, alas, there is another take on this. Maybe the reluctance from banks to take part in the auction has nothing to do with not needing, or wanting, the money. Rather they are running scared, they daren’t take the money in case they suffer a Northern Rock type run.

Many say the Bank of England was too soft on Northern Rock, that by bailing out the bank our central bank sent a message to the rest that risk taking was okay, since if things went wrong the Bank of England would step in. Well, if the theory that the Bank of England’s auction has failed because the banks are running scared is true, then it would be quite absurd to say Northern Rock was treated too kindly. If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link

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