The Bank of England (BoE) today gave banks caught up in the credit crisis greater flexibility on how much cash they can borrow without penalty to manage daily cashflow.
Britain's central bank - which has taken a largely hands-off stance on the crisis engulfing world credit markets - allowed banks to raise their reserves by £4.4 billion.
More significantly, from now on banks can let their reserves target at the central bank fluctuate by 37.5 per cent on either side instead of the normal 1 per cent band.
Interbank lending rates came down after the announcement, having shot up in recent weeks as financial institutions were reluctant to lend.
At the start of each month, banks tell the BoE what they want to hold in reserves at the central bank - which should cover them for the biggest difference between the amount of money they receive and what they pay out.
Normally, banks are obliged to hold 1 per cent above or below that balance when averaged over the month or else they get penalised. But they will now have a much bigger buffer for any unforeseen cash needs.