The British Pound tumbled significantly, and while the move was generally the result of US Dollar gains this morning, news that two of the UK’s biggest banks were seeking emergency funding did little to aid the currency.
Barclay’s and Royal Bank of Scotland will borrow a total of $30 billion, sparking additional worries that the UK financial markets remain distressed. What may be most disconcerting, however, is that these banks are borrowing from the US Federal Reserve, not the Bank of England. The funds are said to be used as contingency funding and may not even be utilized if conditions continue to improve. Nevertheless, it is clear that the Bank of England remains reluctant to provide liquidity to the UK markets in fear of the potential for moral hazard to come into play. If the central bank has not sought to accommodate the markets during the tightest of credit conditions, there is very little chance that the BOE will move to cut rates in the near term.