Bank of England Gives Lenders Estimated $354 Billion

U.K. banks probably have tapped the Bank of England for more than 200 billion pounds ($354 billion) less than two months before its emergency funding plan is scheduled to end, according to UBS AG analysts.

The central bank's so-called special liquidity scheme, established in April and set to close in October, allows banks to swap mortgage-backed securities hurt by the credit squeeze for government bonds. Banks may face insolvency unless central bank Governor Mervyn King succeeds with his plan to put in place a new money-market system, UBS said.

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Money markets show that the credit crunch, one year on, is not abating and may be worsening. The difference between what banks charge each other for three-month dollar loans and the overnight indexed swap rate, the Libor-OIS spread that measures the availability of funds in the market, ``remains elevated,'' the Basel, Switzerland-based Bank for International Settlements wrote in its quarterly report.

The spread was 78 basis points today, compared with an average 8 basis points in the 12 months to July 31, 2007, before the credit squeeze started. The strains in global money markets will probably persist ``for some time,'' the BIS said.