The Bank of England will pump an extra £5 billion into the financial system in a further move to boost liquidity and today hinted it may re-consider the type of assets UK banks can use as collateral.

Today’s move follows a meeting between Governor, Mervyn King, and the head of the UK’s five leading financial institutions who are seeking more funds and flexibility on the securities they can use to borrow from the Bank of England.

The Bank of England will now auction £15 billion in three-month money on April 16, compared to the £10 billion offered in March.

The Bank of England’s announcement sent the London inter bank offer rate (Libor), the rate banks charge to lend to each other, down from 5.95 per cent to 5.93 per cent.

Since last month's auction of three-month money, Libor soared above 6 per cent on March 31, as banks grew increasingly cautious about lending money to other financial institutions.

In total, including six, nine and 12 month money, the Bank will offer £16.35 billion to banks. Last year, the average three-month sum offered by the Bank of England was just £1.6 billion.

April's increased sum is in addition to the extra £5 billion the Bank has been pumping into the system on a weekly basis.

Today's announcement also follows a meeting between Mr King and the chief executives at HBOS, Royal Bank of Scotland, Barclays, Lloyds TSB and HSBC, exploring other methods of helping to salve liquidity, including making more funds available and accepting a wider range of assets as collateral.

The Bank made it clear today it will not alter the type of assets it will accept to lend to financial institutions in April after widening the securities banks can borrow against in December to include highly-rated residential mortgage-backed debt.

But the Bank hinted today that it is re-considering this stance for future auctions as it meets with UK financial institutions. It said: "Further measures will be announced in due course following discussions with interested parties which are continuing."

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