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Bank bosses end meeting with King Extra cash on offer to UK banks
(20 minutes later)
The bosses of major UK banks have held their meeting with Bank of England Governor Mervyn King. The Bank of England has injected an extra £5bn into the money markets in an attempt to ease concerns about the liquidity of the banking system.
The Bank of England said in a statement that they had agreed to continue to work together to restore more orderly market conditions. The loans were added to the normal weekly funds offered to commercial banks, making £11bn now available.
The meeting came the day after HBOS shares were hit by rumours about its liquidity, which are being investigated by the Financial Services Authority. The announcement came ahead of a meeting with the bosses of the big five UK high street banks.
Ahead of the meeting, the Bank raised the funds available to lenders. The banks are understood to want the Bank of England to pump even more cash into the system.
It is adding an extra £5bn to its normal weekly funds available to commercial banks, with £11bn now on offer at its weekly cash auction. Both the European Central Bank and the US Federal Reserve have made much more money available to their banks.
This week's additional funding, released on Thursday, was three times oversubscribed.
The Bank said an extra £5bn a week would be released at least until its next monthly meeting on interest rates on 9 April.The Bank said an extra £5bn a week would be released at least until its next monthly meeting on interest rates on 9 April.
'Strong confidence' This week's additional funding, released on Thursday, was three times oversubscribed.
Senior executives from the big five banks - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS - attended the meeting with Bank officials. 'Close dialogue'
The banks were understood to want Mr King to guarantee that if any UK lender suffered a cash shortage, it would provide whatever finance was needed. No details of the talks between the bank bosses and Mervyn King have been disclosed, but the Bank of England issued a short statement.
There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling UK Financial Services Authority class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/03/banks_dont_panic.html">Read Robert Peston's blog "The Bank of England and the banks agreed to continue their close dialogue with the objective of restoring more orderly market conditions," it said.
Angela Knight, chief executive of the British Bankers Association, told the BBC's Today programme that she was confident the Bank would take action. The banks represented were HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS.
"The Bank of England is very keen to ensure that we have good strong confidence in our market - after all we've got good strong banks," she said. HBOS shares were among the top gainers on the London Stock Exchange on Thursday, up 6.2% recovering most of their falls from the previous day.
"We're all facing as I say a particularly unusual situation in this credit crunch."
'No substance'
On Wednesday, the Financial Services Authority (FSA) said it would "not tolerate" traders starting "false" rumours about firms to make cash from dealing in their shares.On Wednesday, the Financial Services Authority (FSA) said it would "not tolerate" traders starting "false" rumours about firms to make cash from dealing in their shares.
WHAT IS SHORT-SELLING? Trader borrows shares, then sells themRepurchases shares later at a lower priceTrader returns shares to lenderMakes a profit on the difference
HBOS, whose shares fell as much as 17% at one stage on Wednesday, denied rumours of funding difficulties.
"There has been a series of rumours in the market today [Wednesday]," said a HBOS spokesman.
"A number of ill-founded and malicious rumours about the UK banking system in the markets.
"These rumours have not a shred of substance whatsoever. They are lies."
'Just criminals'
HBOS said it supported the "decisive action" of the FSA to investigate the alleged market abuse.
Those behind the rumours are no worse than ordinary criminals, they're just basically stealing money from the market Banking analyst Ralph Silva
"There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling," the FSA said in a statement.
In short-selling a trader borrows shares, sells them immediately and hopes to repurchase the shares in the future at a lower price.
The trader can then return them to the lender and make a profit on the difference.
Ralph Silva, a banking analyst at financial consultancy and research firm, Tower Group, told BBC Radio Five Live that those behind the false rumours "ought to be flogged".
"They're no worse than ordinary criminals, they're just basically stealing money from the market," he said.
"They're putting out rumours, they're putting out lies, and they're taking advantage of the lies they put out, they're just criminals."
The credit crunch started last summer following the revelation of multi-billion dollar bad debts in the US mortgage sector.
The knock-on impact has made banks around the world unwilling to lend to each other, making credit much harder to find and more expensive.