Bank Makes Shock U-Turn to Pump Pounds 10bn Into Market

Summary

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The Bank of England made a dramatic U-turn in its handling of the credit crisis yesterday after agreeing to pump at least pounds 10bn into longer-term money markets. It has already moved to prop up overnight markets between banks crippled by fears over losses on high-risk US mortgages, but had refused to intervene in three- month money markets, saying banks should face the consequences of risky longer-term lending.

But confidence in the banking system has been shaken by the woes at mortgage lender Northern Rock, prompted by soaring interest rates in three-month money markets where the firm borrows most of its cash for mortgage lending.

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Extract

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Bank Makes Shock U-Turn to Pump Pounds 10bn Into Market

The decision is an embarrassment for the Bank's Governor, Mervyn King, who said a week ago that providing short-term liquidity to markets in trouble "encourages excessive risk-taking and sows the seeds of a fu...

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