US Federal Reserve puts £15million aside for Barclays and RBS in midst of credit crisis

22 October 2007
In the event that people hit by the credit crisis need to borrow more money, Barclays and the Royal Bank of Scotland have secured £15 million of potential funds from the US Federal Reserve – £10 million and £5 million, respectively.

The Reserve has offered a window of opportunity for banks to borrow at a discount rate of interest – an offer that several other international banks have welcomed – and is encouraging lenders to take them up on it in order to restore faith in the banking industry and to make sure the banks can provide loans in needs be.

The Reserve is offering the loans to banks that need short term liquidity, and they might be forced to take them up on the offer because lenders are still unwilling to lend amongst each other. As yet, neither Barclays nor RBS envision having to make use of the funds, and it is thought they will only do so if necessary, because borrowing from the Federal Reserve could be construed as a sign of financial weakness.

The Financial Services Authority and wider banking community are concerned that the credit crisis will cause the financial industry to be judged and sentenced before they have a chance to evaluate what went wrong themselves, and establish how to prevent it happening again in the future.

Financial institutions are emphasising that regulators should avoid a knee-jerk reaction to the credit crunch, as such a response could restrict the future availability of products, and create additional financial burdens that could damage profitability.

Speaking at the Institute of International Finance's 25th Anniversary Membership Meeting in Washington over the weekend, Callum McCarthy, the chairman of the FSA said “We must not succumb to pressure for new regulatory initiatives to demonstrate that we are taking action. It is hard to think of an example where a rush to regulate has not caused more problems than it has solved.”

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