British banks have been borrowing unusually large amounts from the European Central Bank (ECB) due to the Bank of England's reluctance to make extra funds available, a German newspaper reported today.
Large British lenders are borrowing the cash from the ECB via continental European subsidiaries, the Financial Times Deutschlandreported.
The banks are then using most of the funds to buy US dollars as they are needed because of problems stemming from risky US subprime mortgages, the paper said.
Central banks have poured cash into money markets over the past month to ease the liquidity squeeze but have said they are not bailing out investors who have bought into risky assets.
The ECB on Wednesday lent banks a record €75 billion in extra three-month funds. The tender was heavily oversubscribed, with 140 banks bidding for a total of €139.0 billion in refinancing in what is only the ECB's second-ever injection of three-month funds outside its normal monthly schedule.
The Bank of England has attracted criticism from some financial institutions for its hands-off response to the credit market turmoil.
It said earlier this week it would only provide support to institutions facing short-term liquidity problems and would not bail out insolvent companies.