Bank of England Injects Further To Fragile Banking Sector

The Bank of England has announced a further cash injection to the value of £4.4 billion, roughly $9 billion, to relieve liquidity pressures in the banking sector amidst the ongoing tight credit environment.

The central bank has increased the total available fund from which banks can borrow to £23.1 billion in a bid to remove much of the pressures on high-interest inter-bank lending, which has skyrocketed in cost over the last few months off the back of ongoing fears of a global credit squeeze derived from the sub-prime sector.

The move is designed to ease credit fears and allow businesses to grow and develop with adequate finance available in an otherwise hostile credit environment.

With increasing exposure to the sub-prime lending crisis, banks across the world have been reluctant to lend money and tie up liquidity in long-term mortgage lending, hence businesses have found it harder to fund expansion projects and outside investment.

Today’s move is the latest in a long line of central bank measures designed to allow banks to breathe, with the backup of extra cash liquidity if necessary.

Despite the move, Mervyn King, chairman of the Monetary Policy Committee at the Bank of England, suggested that he would not be willing to rescue any particular lenders that had allowed themselves to become too exposed to the sub-prime crisis, to ensure imprudent risk-taking would not be encouraged.

Additionally, Mr King suggested it would be unfair to penalise banks that had been less aggressive in the sub-prime sector for exercising prudence and caution.

In stark contrast to Mr King’s position, central banks in Japan, the US and the ECB, all of which have been particularly supportive of their banking systems in the wake of the sub-prime situation in order to stabilize markets and bail out particularly troubled lenders.

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