Even though no bidders came forward when the Bank of England offered up funds to help floundering lenders following the Northern Rock crisis, these banks are now joining together to create a 'temporary auction facility'.
The first will be held on Monday 17 December and banks will be able to bid for a chunk of the $20 billion which will go to auction, in whichever currency they please.
However only banks judged to be in a sound financial condition will be able to participate as the central banks opt to exercise some form of protection.
“This news just goes to illustrate again how serious the illiquidity issue in money markets has become," said Ian Kernohan, economist at RLAM.
"For monetary policy to work, it is important that changes in Bank Rate are passed on to money market rates and this just wasn’t happening.
"If it works, and it’s too early to tell at the moment, this action reduces some of the downside risks to growth in 2008, but it doesn’t change my view that the UK economy will slow appreciably or that interest rates will be cut again early next year.”
