Barclays annoyed to explain more emergency borrowing

Barclays Reassures After
More Emergency Borrowing

By Peter Thal Larsen and Chris Giles
Financial Times, London
via Yahoo News
Thursday, Aug 30, 2007

http://news.yahoo.com/s/ft/20070830/bs_ft/fto083020071955571131;_ylt=Aiy...

LONDON -- Barclays rushed to reassure investors and depositors on Thursday night after it was forced by what it said was a technical glitch to borrow from the Bank of England's emergency reserves for the second time in just over a week.

The UK bank issued a statement after it emerged it had borrowed £1.6 billion from the central bank's emergency facility on Wednesday evening. The facility, which carries a penalty rate of interest, has become the subject of intense scrutiny by investors as they search for signs of distress as a result of the recent turmoil in the capital markets.

Barclays was forced to use the facility after a technical breakdown in the system used to clear and settle money-market transactions left it unable to borrow in the inter-bank market to cover a short position in its accounts with the Bank of England.

But the episode is embarrassing for Barclays, which was last week drawn into a dispute with HSBC, its UK rival, after borrowing £314 million from the central bank's emergency facility.

However, Barclays stressed it was not facing any financial difficulties: "Had there not been a technical breakdown, this situation would not have occurred," Barclays said. It added: "There are no liquidity issues in the UK markets. Barclays itself is flush with liquidity. In these challenging times the dramatisation of such situations is of no help to markets, their members, or their customers."

The news came as investors were looking for signs that banks may have suffered losses as a result of the upheaval in the credit markets. This week, Barclays moved to ease concerns about its exposure to troubled debt vehicles created by its investment bank. On Thursday, it insisted it had not put any pressure on Edward Cahill, a senior director in credit derivatives who quit suddenly last week, to resign and that it had met him this week to ensure an orderly transition of responsibilities.

Also on Thursday night, Standard & Poor's, the rating agency, reaffirmed Barclays' credit ratings after concluding that the bank's exposure to potential losses as a result of the US subprime mortgage meltdown was limited.

Technological problems arose on Wednesday when the link between Crest, the UK settlements house, and the Bank's electronic settlements system broke down for an hour, potentially interfering with banks' deals. Crest said it had extended the deadline for settlements by an hour in order to clear any backlog, and had not received any complaints from banks.

However, the effects of the technical breakdown were evident from reserves other banks hold with the Bank of England, which on Wednesday were £1.647 billion higher than it had forecast for the day.

The Bank of England last night declined to comment. However, it is understood that regulators are not concerned about any liquidity issues involving UK banks.

Earlier in the day, news that the Bank had lent £1.556bn overnight reignited fears that UK banks were facing severe liquidity difficulties and sent sterling and money markets sharply lower. The overnight rate in the interbank market spiked higher to 6.13 per cent, almost 0.4 percentage points higher than the Bank's official 5.75 per cent rate. The pound initially fell 0.5 per cent to $2.0046 against the dollar before recovering ground to close slightly up in London at $2.0160.

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