2008-09-03bloomberg.com

U.K. banks probably have tapped the Bank of England for more than 200 billion pounds ($354 billion) less than two months before its emergency funding plan is scheduled to end, according to UBS AG analysts.

The central bank's so-called special liquidity scheme, established in April and set to close in October, allows banks to swap mortgage-backed securities hurt by the credit squeeze for government bonds. Banks may face insolvency unless central bank Governor Mervyn King succeeds with his plan to put in place a new money-market system, UBS said.

...

Money markets show that the credit crunch, one year on, is not abating and may be worsening. The difference between what banks charge each other for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, ``remains elevated,'' the Basel, Switzerland-based Bank for International Settlements wrote in its quarterly report.

The spread was 78 basis points today, compared with an average 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started. The strains in global money markets will probably persist ``for some time,'' the BIS said.


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