British lenders are shunning the Bank of England and turning instead to the European Central Bank on a massive scale, taking advantage of much lower interest rates and guaranteed anonymity to weather the credit crunch.
The huge Euro sign is seen in front of the headquarters of the European Central Bank, British banks gorge on ECB's cheap credit
EU sources say Britain's banks have been clamouring for money in Frankfurt
EU sources say Britain's banks have been clamouring for money in Frankfurt, accounting for a substantial chunk of the €190bn (£132bn) lent last week in the ECB's variable tender operation. "It is fair to say they have been borrowing from the ECB on a very large scale. It's cheap, so why not," said one official.
The UK banks were also major subscribers at the €50bn issue of three-month loans on September 27 at 4.63pc, and the earlier tender of €75bn on September 13.
Hans Redeker, currency chief at BNP Paribas, said British reliance on ECB funds has become to big that it is leaving a clear footprint in the currency markets, forcing up sterling on the days following ECB tenders as the banks switch euros into pounds – typically Thursdays, Fridays, and Mondays.
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