The Bank of England acted again today to further ease the intense funding strains facing UK banks.

In a drastic step, the Bank said that it would now accept high-grade corporate loans from banking groups as security for three-month funding loaned under its weekly auctions.

The Bank will accept triple AAA-rated collateral, which is top rated and the most secure asset-backed securities linked to some corporate and consumer loans made by banks, as well as highly rated issues of commercial paper used in corporate lending to manage working capital.

The move is the latest measure by the Bank and its global counterparts to help ease the severe strains in money markets that threaten to paralyse the financial system.

Mervyn King, the Bank's Governor, said: "In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity."

Analysts said the moves would help ease the liquidity squeeze but did not rule out further action.

“They’re pulling out the stops to try and solve the problems in the interbank markets and it’s another step in that direction,” said Paul Dales at Capital Economics. “They’ve got quite a lot of ammunition in their hands and they are slowly releasing it as the events warrant.”

The Bank will offer £40 billion at its next auction on October 7 and will continue the weekly extended collateral auctions until at least November 18.

After its decision to widen the security it will accept for loans, the Bank said that there will be a minimum bid rate for banks in the auctions of 0.5 percentage points above the relevant interest rates in overnight swaps markets linked to its base rates.

Some detected a change in tone from Mr King, who came in for heavy criticism last year for not responding quickly enough to the credit crisis.

"It’s the comment from King that makes the difference,” said Brian Hilliard, chief UK economist at Société Générale. “The main message is that, unlike a year ago, the Bank is not going to drag its feet."

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive