Bank of England announces loans auction

The Bank of England is hosting a one of a kind loan auction. For the first time ever the Bank will offer up to £10 billion of funding to financial institutions. It realised it needed to do something drastic to help the current tension within the global money markets as well as trying to prevent another 'Northern Rock' episode.

Any Building Society or Bank can place a bid at the auction, and will remain anonymous. However there is some worry that may stop some financial institutions bidding, and that is if the information leaks out to the general public.

Despite promising anonymity, the risk of an information leak or rumours spreading are high. This may cause panic in the public domain and cause more customers to withdraw money from their existing accounts and put it somewhere else. It is unlikely the loans will be taken out on a whim as interest rates will be at least 6.75% and will need to be re-payed within 3 months.

This type of auction has already been done recently by other financial bodies such as the European Central Bank and the US Federal Reserve in response to the US sub-prime mortgage market crash.

John Wraith, a strategist at RBS said; "We expect strong demand and high bidding rates due to the Bank's willingness to take unpackaged mortgages as one of the forms of collateral".

Lets hope this move will help put confidence back into our banking institution.