Banks snap up cheap loans

A multibillion-pound scheme set up by the Bank of England to boost cash flows at Britain's biggest banks was launched today with full take-up from the country's lenders.

The Bank offered £5 billion in cheap loans with a rate of 0.75% at the first auction under its new lending facility, which was taken up entirely by participating banks.

However, it is understood all the major banks applied for the six-month loans because the Bank instructed them to do so as governor Sir Mervyn King wants the facility to be viewed as a mainstream source of funding, as opposed to an emergency measure.

Sir Mervyn announced that he would activate the facility, which will occur at least once a month, in his Mansion House speech last week as one of a number of measures designed to bolster the economic recovery.

The governor and Chancellor George Osborne also unveiled an estimated £80 billion scheme designed to stave off a second credit crunch as the eurozone debt crisis encroaches on British shores.

PA