UK bankers call on Bank of England to be more flexible and generous

BRITAIN'S TOP bankers urged the Bank of England to be more generous and flexible to ease tensions in fragile money markets at a meeting yesterday.

The central bank pumped an extra £5 billion into money markets yesterday, but banks, facing their toughest period for over a decade, believe it must do more to restore confidence in Britain's financial system, according to bank industry sources.

The Bank of England said in a short statement after the meeting that it and the banks "agreed to continue their close dialogue with the objective of restoring more orderly market conditions".

Boosting banks' access to liquidity and limiting damage from rumour-mongering topped the meeting of bank executives and officials, chaired by Bank of England governor Mervyn King. Details of the talks were not disclosed.

After months of turmoil, the banking industry was shaken further on Wednesday by speculation that a bank faced liquidity problems. HBOS, the biggest UK mortgage provider, bore the brunt of the chatter and its shares plunged 17 per cent.

HBOS dismissed the rumours and authorities joined in with an unprecedented public reaction.

The Bank of England said no bank was in trouble and the Financial Services Authority warned it would hunt out people spreading "unfounded rumours".

By yesterday's close, HBOS had clawed back almost all of its loss, but investors remained jittery about UK banks.

The reaction by authorities showed they are more alert to worries than six months ago, when they were criticised for a tardy response to a crisis at Northern Rock, which has since been nationalised.

The Bank of England said the extra £5 billion in weekly loans offered yesterday would remain on offer until its next interest-rate meeting next month. However that may not be enough.

"We have entered a substantially slower phase in the housing market and there will be ongoing problems in the mortgage-funding markets unless the Bank of England makes new, broader-based attempts to improve levels of liquidity in the UK," said Michael Coogan, director general of the Council of Mortgage Lenders.

The council said mortgage lending slumped 6 per cent in February from a year ago. Banks agree more needs to be done.

They called on the Bank of England to follow the European Central Bank in offering to provide as much liquidity as necessary during the turmoil, and to be more flexible and responsive with its money operations, according to bank industry sources.

They said language linked to the use of "emergency" facilities meant there remained a stigma attached to accessing some funds. Banks should be allowed to use more collateral for borrowings and the duration of loans should be extended.