Barclays said to have borrowed €461m from BoE

Barclays is understood to be the group that called upon the Bank of England’s emergency lending facility, it emerged today.

The UK’s third largest bank is reported to have borrowed £314m (€461m) from the Bank of England on Monday night after another large bank missed a scheduled payment.

It is not believed that the emergency loan was connected to liquidity concerns in the credit markets, with banks regularly using the facility when payments are missed.

The issue was reportedly operational, although Barclays declined to comment.

But the move marks the first time the Bank’s standing facility has been called upon since the recent turmoil began more than a month ago, adding significance amid current heightened nervousness in markets.

It also came after one of Barclays’ fellow “big five” UK banks, HBOS, confirmed it had stepped in to support one of its in-house funds that had been struggling to finance itself due to the credit tightening.

Halifax-parent HBOS said it would provide financing to Grampian, which has assets worth around US$37bn (€28bn), to help the division repay a maturing debt “until such time as market pricing improves to a level acceptable to HBOS”.

Grampian is a so-called conduit fund that holds asset-backed securities and usually finances its investments by issuing short-term commercial paper, which is similar to a bond and used as an IOU.

The credit crunch and volatility seen in the markets has made it harder for conduits to issue commercial paper, faced with sharp and sudden increases in the cost of short-term market funding.

HBOS stressed that its decision to provide financing direct to Grampian would have no “material” negative impact on the wider group.

Markets will, however, be waiting to see if other banks are also forced to bail out commercial paper subsidiaries and will also be monitoring closely the use of the Bank of England’s standing facility.

The Bank’s emergency fund allows other financial institutions to borrow unlimited amounts of money overnight at a penalty interest rate of 100 basis points over the base rate – currently 5.75%.

Monday’s loan was the first time that a bank has accessed the funds since July 17.

The funds have been accessed around 11 times since the start of the year.

Credit markets have been squeezed over the past month as a result of a default crisis in the US sub-prime mortgage market.