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Barclays needs central bank loan Barclays needs central bank loan
(about 4 hours later)
Barclays says that a "technical breakdown" in the UK's clearing system forced it to borrow £1.6bn from the Bank of England.Barclays says that a "technical breakdown" in the UK's clearing system forced it to borrow £1.6bn from the Bank of England.
It is the second time this month that the bank has tapped into the central bank's emergency credit line, sparking fears it is facing a cash crisis.It is the second time this month that the bank has tapped into the central bank's emergency credit line, sparking fears it is facing a cash crisis.
But the UK bank insisted it was "flush with liquidity".But the UK bank insisted it was "flush with liquidity".
At the end of every day, banks such as Barclays have to settle their trades through the market settlement system.At the end of every day, banks such as Barclays have to settle their trades through the market settlement system.
Credit scrutiny
Typically, if borrowings are greater than their reserves at the end of the trading session, banks can borrow money from other banks to make up the difference.Typically, if borrowings are greater than their reserves at the end of the trading session, banks can borrow money from other banks to make up the difference.
But a malfunction in an electronic trading system on Thursday afternoon meant that Barclays discovered it had a shortfall too late to borrow from another high street bank. Barclays explained that it was forced to tap into the Bank of England's emergency credit line because a technical glitch meant it discovered the shortfall in its finances too late in the day to borrow from another high street bank.
The dramatisation of such situations is of no help to markets, their members or their customers Barclays statement it added that the malfunction affected an electronic trading system on Thursday afternoon.
Unable to get help in the wholesale market, Barclays had to turn to the Bank of England for a loan at a rate of 6.75%, which is 1% above its base rate. 'Challenging times'
High Street banks have gone to the Bank of England for such funding 14 times so far this year, but such transactions have come under greater scrutiny amid concerns about a lack of liquidity at some banks.
"Had there not been a technical breakdown, this situation would not have occurred," Barclays said in a statement."Had there not been a technical breakdown, this situation would not have occurred," Barclays said in a statement.
"In these challenging times the dramatisation of such situations is of no help to markets, their members or their customers.""In these challenging times the dramatisation of such situations is of no help to markets, their members or their customers."
But traders have questioned the bank's explanation, saying the loan was taken out at about 1100BST on Thursday - five hours before money markets shut and well before the problems hit the electronic trading system.
"When you add this to the senior resignations a week or so ago, you can understand why the stock is coming under pressure," said Simon Denham, managing director of Capital Spreads.
Edward Cahill, the man in charge of structuring debt investments at the bank's investment arm Barclays Capital, unexpectedly resigned last week.
His sudden departure sparked panic that Barclays could be sitting on hefty losses as a result of the devaluation of these debt funds which are heavily tied to sub-prime US mortgages - well-known to be the key factor causing havoc in financial markets.
Others in that division are also believed to have left.
Yet, Barclays' shares rose almost 1% to 602.5p in morning trade, in a sign that the market is cautiously confident that its financial position is still strong.
Greater scrutiny
The Bank of England's loan rate to commercial banks is 6.75%, which is 1% above its base rate.
High street banks have gone to the Bank of England for such funding 14 times so far this year and such a loan does not usually raise eyebrows.
But such transactions have come under greater scrutiny amid concerns about a lack of liquidity in some financial institutions.
On 20 August, Barclays was forced to take out a £314m loan from the Bank of England after HSBC was unable to process a last-minute request for the money.On 20 August, Barclays was forced to take out a £314m loan from the Bank of England after HSBC was unable to process a last-minute request for the money.