2%, the interest rate was not generous. Instead of pumping money into the banking sector in order to avert the impending liquidity crisis, the Governor of the Bank of England signalled to the markets that banks which have become weakened by imprudent actions may be allowed to fail. Unless depositors consider their funds to be safe, there will be a run on any bank, no matter who it may be. Indeed on September 19th, the Federal Reserve cut interest rates by 0. Should a bank's need for cash become public, then the bank may unwittingly invite a run on its funds.5% from 5. If the Bank of England was planning to open a massage parlour or lap dancing club in Threadneedle Street, then this may well constitute a moral hazard for Mr King and his colleagues at the Bank of England. Perhaps Mr King was slightly befuddled and was confusing his role with that of MI5 or the CIA. In a slightly different context, if homeowners, who had defaulted on mortgage capital repayments, were offered an interest only loan of 6. This sum was roundly rejected. Mervyn King justified the Bank of England's lack of intervention with respect to Northern Rock by reference to 'Moral Hazard'. Based on the culture of blame and leaks from the tripartite agencies of the Bank of England, the Financial Services Authority and the UK Treasury, no bank was prepared to take the risk of borrowing a large sum from the Bank of England.
A leak from the Bank of England would transform a crisis into a disaster.75% and interbank rates of around 6.75% for 3 months, the offer would have been welcomed, and home repossessions would be reduced dramatically. . It appears that they were seeking a Bank of England loan of up to GBP20bn over 2 years. US$20bn was on offer on each of the 4 auctions, during the period 26 September to 17 October, making a total of US$80bn.75. When the run on Northern Rock was eventually halted by a government guarantee to all depositors, there was pressure on the Bank of England to act in order to ensure that no other bank would be at risk. Mr King also made several references to the desirably of 'Covert Action' in dealing with the Northern Rock crisis, but claimed that he was prevented from acting in this way by UK legislation. However, there are persistent rumours that larger banks, such as Barclays, are in trouble. The rate of interest would be 6. The cause of the problem is the same as Northern Rock, namely, it requires significant funds from the wholesale market in order to top up money held from depositors. With the benefit of hindsight, this was a reasonable offer from Lloyds TSB as the Bank of England has subsequently handed Northern Rock some GBP28bn and the crisis remains far from over. The essence of banking is confidence. However, the main impediment to any bank taking up the Governor's offer was that the guarantee of confidentiality was not deemed to be worth the paper it was written on.