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Published on Gold Anti-Trust Action Committee (http://www.gata.org)

Barclays, RBS prepare emergency credit with Fed

By cpowell
Created 2007-10-21 14:53

By Ian Dey
The Telegraph, London
Sunday, October 21, 2007

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=XKBX04TQ1EM4BQFIQ... [1]

Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30 billion (L15 billion) from the US Federal Reserve to bail out American clients caught up in the global credit crunch.

The Fed's board of governors wrote to both banks 10 days ago, granting them access to funds for customers "in need of short-term liquidity"

The letter to RBS made particular reference to investors holding mortgage-backed securities -- which have been at the centre of the sub-prime crisis.

The request from the two banks is a stark reminder that the global liquidity freeze is far from over.

It is similar to those offered to Citigroup, Bank of America, JPMorgan Chase, and Deutsche Bank at the height of the credit crunch.

It is understood that neither Barclays nor RBS has had cause to use the Fed funding line yet. The credit line has been set up as a contingency, and may not need to be used at all, banking sources stressed last night.

Barclays has been given permission to borrow up to $20 billion through the facility, while RBS can borrow up to $10 billion. The banks would have to put up assets as collateral with the Fed to gain access to the cash. A spokesman for Barclays Capital said: "This secures another potential source of funding should our US clients seek it."

A spokeswoman for RBS declined to comment.

The Fed governors wrote to Barclays on October 11 to reveal that it had agreed to a request from the British bank for access to the lifeline funds.

RBS received a letter the following day. Both letters were published on the Fed's website last week.

It is unclear whether or not the two UK banks approached the Fed together, or if the timing was coincidental. RBS and Barclays are known to have been more critical than other major UK banks of the Bank of England's reluctance to pump liquidity into the money markets at the height of the credit crisis.

In an interview with The Sunday Telegraph last month, Bob Diamond, the chief executive of Barclays Capital, made a thinly veiled plea for intervention.

He said it was "down to central banks" to provide liquidity. At the time the Bank was the only major central bank yet to introduce emergency measures. It subsequently did in the wake of the crisis at Northern Rock.

The move comes after a handful of Wall Street banks established a $75 billion bailout fund to buy assets from cash-strapped structured investment vehicles.

Citigroup, Bank of America, and JPMorgan Chase unveiled the superfund -- to be known as MLEC -- last Monday.

It is understood that the founding banks are now trying to bring other Wall Street big hitters into the fund.

Some executives at Merrill Lynch and Lehman Brothers are believed to be pushing to join the scheme, but others have appeared more reticent.

The fund has been set up because some structured investment vehicles (SIVs) are still struggling to refinance short-term commercial paper loans because investors still have concerns about exposures to US sub-prime lending.

The US Treasury has backed the scheme, which it believes will prevent SIVs from being forced into selling good- quality assets in order to stay afloat -- which would run the risk of a fresh bout of contagion in global markets.

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Source URL:
http://www.gata.org/node/5649