An unnamed bank or financial institution has borrowed just under £1.6 billion from the Bank of England under its punitive standby lending facility – the second time in a month the process has been used.

The loan payments, extended yesterday, represent the first time the Bank's standy lending – at a penalty rate of 6.75 per cent – has been used since Barclays borrowed £314 million from the UK central bank two weeks ago.

It is by far the biggest amount lent in recent weeks and immediately led to speculation that a high street bank such as Royal Bank of Scotland, Barclays or Lloyds TSB was involved.

Reuters reports that the Bank confirmed that the £1.6 billion loan was the third largest this year. It lent almost £4 billion on June 29 and just under £2 billion on July 2.

Market sources also speculated that a large investment bank may have found itself with a late-breaking trading position for which it had not organised collateral reserves with the Bank. They said it was unlikely that more than one bank would have drawn on the credit facility, which tends to be used only twice or three times a month.

Last time, Barclays was forced to draw funds after a last-minute request for a loan from HSBC failed to arrive on time. It led to an embarrassing spat between the two retail banks over where the blame lay for the farrago.

The Bank declined to name the borrower or confirm whether multiple parties or a single bank was lent the money. It stressed that the facility, available every day, is regularly used.

The Bank has an obligation to provide liquidity as necessary to the financial markets in its capacity as the lender of last resort.

However, tension over the Bank's lending process has mounted in the wake of the turmoil gripping the international credit markets and the expectation that a medium-sized banking player might struggle to raise short-term finances. Some critics have argued that the Bank should be acting more quickly to inject funds into the system.

HSBC, Barclays, RBS, Lloyds TSB and HBOS declined to comment on whether they had made use of the standby lending facility.

About 45 institutions are able to draw on the facility. They include European banking groups such as Credit Suisse, Deutsche Bank and UBS, Wall Street heavyweights Bank of America and Citigroup, as well as smaller users of the capital markets such as Northern Rock and Bradford & Bingley.

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