New Lending System for Bank of England

The Bank of England revamped the way it will run its cash-lending operations, launching two new liquidity facilities and making some temp changes permanent. The move, designed partly to alert the central bank to future funding crunches, underscores how the credit crisis has changed the architecture of financial markets. The Bank of England will accept a wider range of collateral and give banks greater anonymity when turning to the central bank for funds. It comes a day after the European Central Bank broadened range of collateral it will accept, a turnaround for the 15-nation central bank that only last month tightened its collateral standards. But the ECB's moves are temporary, while those of Bank of England are permanent. Market analysts said the Bank of England's reforms will allow it to respond quickly to future financing pressures. Meanwhile, central banks' more immediate efforts to unstick money markets with a flood of cash continued recently, and interbank lending rates generally eased. The closely watched three-month U.S. dollar London interbank offered rate, or Libor, dropped to 4.5025% from 4.55% recently. The 1-month rate fell to 4.2775%, from 4.35875%, as the overnight rate tumbled to 1.9375%, from 2.14375%, pushing it closer to the Fed Reserve's fed-funds target rate of 1.5%. The Bank of England's announcement also helped push down sterling Libor rates. Overnight rates dropped to 5.175% from 5.375% Wed., but remained above the official Bank Rate of 4.5%. The key 3-month sterling Libor rate eased to 6.185% from 6.21% Wednesday, while the 1-month softened to 6.00375% from 6.03438%.