Barclays dips into Bank's coffers after fresh glitch

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Barclays tapped the Bank of England's emergency credit facility for the second time in just over a week as a technical glitch forced it to borrow again from the lender of last resort.

Barclays borrowed £1.6bn on Wednesday using the stand-by facility as problems with the Crest clearing system left banks unable to see what their positions were with the Bank of England. Barclays was at the centre of speculation yesterday after the Bank of England informed the market of the loan and imposed a communications clampdown on lenders, leaving Barclays' shares to slump.

Barclays declined to comment directly on the loan but said if there had not been a technical problem the situation would not have occurred.

Britain's third-biggest bank added: "There are no liquidity issues in UK markets. Barclays itself is flush with liquidity. In these challenging times, the dramatisation of such situations is of no help to markets, their members or their customers."

Interest on the loan was at a penalty rate of 6.75 per cent, a point more than the Bank of England's base rate.

The Bank ordered lenders not to comment on the loan after several lenders said they had not used the facility last week and Barclays and HSBC argued publicly over whose fault it was when Barclays borrowed £314m because of a short-term problem. The Bank of England declined to comment on its clampdown but banking sources had expressed frustration with the Bank of England's refusal to clarify the matter last week.

Speculation about Barclays' use of the facility rattled investors yesterday, making the bank's shares the worst performers of the UK banks and the second biggest fallers on the FTSE 100, dropping to a new one-year low of 597.5p.

Few had paid any attention to the Bank of England's short-term loan programme until the recent market panic raised fears about banks not having enough funding. The facility, which is available to 56 companies, has been used 19 times in the past year, but with increased regularity and for higher sums since the start of June, just before the panic in the credit markets took hold.

Lending markets have seized up as losses on securities backed by US sub-prime mortgages have caused panic among financial institutions around the world. Where banks once routinely made short-term loans to each other, they are refusing to provide credit to institutions with balance sheets exposed to sub-prime loans or other risky assets.

Bank shares have taken a pummelling in recent weeks because investors are concerned about how the credit crunch will affect them.

In the past week, attention has turned to big lenders with investment banking operations such as Barclays, which has been involved in devising and setting up complex investment products called structured investment vehicles (SIVs).

Standard & Poor's, the credit rating agency, said its rating on Barclays was undisturbed by the bank's potential exposure to SIVs, which are funds that issue cheap short-term debt called commercial paper to invest in long-term higher-yielding assets such as mortgage-backed securities.

S&P said Barclays was exposed to US conduit funds valued at about $35bn, including one called Sheffield Receivables Corp with about $22bn of outstanding commercial paper. The ratings agency said the conduits were being refinanced, largely through the commercial paper market and that Barclays had capital to fund them if necessary.