ECB lends $5.5 bn at low rates to banks

Sep 27 | Updated: Sep 28 2007, 05:50am hrs
The European Central Bank lent the most money at its penalty rate in almost three years, suggesting at least one bank is still being shut out of credit markets.

The ECB loaned 3.9 billion euro ($5.5 billion) at its marginal rate of 5%, the most since October 2004, the Frankfurt-based central bank said in a daily borrowing-requirement statement today. It didn't provide details of which bank or banks asked for the money.

No-one knows where the bodies are buried, said Stuart Thomson, who helps oversee about $46 billion in bonds at Resolution Investment Management in Glasgow, Scotland. It's likely that money markets are going to be in a state of shock for some time to come.

The rate banks pay one another for three-month money in euros rose to 4.79% on Thursday, a six-year high, according to the British Bankers' Association.

The ECB has held seven special auctions to help cash-strapped banks since August 9.

In the UK, banks have been reluctant to turn to the Bank of England for emergency funding on concern it would fuel speculation they are in financial difficulty.

Barclays Plc had to deny it faced liquidity problems last month after twice tapping the central bank's emergency overnight-lending facility.

A 10 billion-pound ($20 billion) auction of three-month money at a minimum rate of 6.75% by the Bank of England failed to muster any bids.Institutional lenders are likely to remain skittish in this environment, said Lena Komileva, an economist at Tullett Prebon in London.

There is no quick fix in the pipeline at least until the year-end.