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The Bank of England today joined forces with five of the world's most powerful central banks to inject up to $180 billion (£100 billion) into the world's financial system in a concerted bid to ease the funding pressure on international markets.

The US Federal Reserve is lending the Bank of England, the European Central Bank (ECB), the Swiss National Bank and the central banks of Canada and Japan billions of dollars to pump into their financial systems.

It is the first time that the Bank of England has injected dollars into the overnight borrowing markets and comes just days after the collapse of Lehman Brothers, the Wall Street investment bank.

Yesterday the Bank extended its Special Liquidity Scheme by a further three months “in view of the current disorderly market conditions".

The scheme, which lets banks exchange some of their riskier holdings for Treasury bonds, was due to end next month but will now run until January 30.

The Bank has pumped £25 billion into the money markets this week already, having made £5 billion available on Monday and a further £20 billion the following day.

The $180bn is equivalent to a fifth of the British Government's annual spending of £500 billion or three times the personal fortune of the world's richest man, Warren Buffett.

The cost of dollar borrowing between banks has soared since Monday when Lehman filed for bankruptcy and Merrill Lynch was rescued by Bank of America.

Since then, AIG, the US insurance giant, has been forced to seek $85 billion in funding from the Federal Reserve. Today's emergency funding has calmed overnight funding rates, with dollar borrowing falling from 5.03 per cent to 3.84 per cent.

Instead of lending each other money in the wholesale market, banks have hoarded cash, pushing up the price of borrowing and putting more pressure on already stretched financial institutions.

The Bank of England could pump in $40 billion to the UK, while ECB could inject as much as $110 billion into the markets.

The move represents the latest effort by central banks worldwide to open up the short-term money markets, which have stubbornly remained shut despite the efforts of international regulators.

Problems accessing capital on the money markets was central to the demise of Northern Rock, the British mortgage lender.

It fuelled the difficulties at Bear Stearns, the Wall Street bank that was taken over by JP Morgan Chase in March and it increased problems for Lehman Brothers, the former US banking titan that was plunged into Chapter 11 bankruptcy at the beginning of the week.

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