The idea is simple; the bank of england looks after the big banks, and the big banks look after the little ones. The FT advisor website are claiming that the BoE struck a secret deal with top banks to rescue ailing competitors in return for the £50bn special liquidity scheme. If the FT are printing it, it must be true:
Jason Kabel, associate director and portfolio manager, money market and fixed income for F&C Investments, said the country’s biggest lenders were being granted access to the Bank’s special liquidity fund in return for the trickling down to smaller retail banks through transactions and not being horded bolster up balances.
Mr Kabel said: “The larger lenders all charged in first, however, it is a jittery market and they were reluctant to pass on money in transactions as, at the moment, you just have no idea who is going to have problems next. It has not solved the trust issue.
“The result is the cash injection was limited in impact with only a handful of banks actually managing to lower rates. Nearly all have since gone up as it provided a floor but liquidity still remains at zero.”
A spokesman for the Bank of England said it would not comment on what organisations had called on the funds before 21 October when the drawdown facility closed but said the £50bn should trickle down throughout transactions in the banking system.