Barclays emerged last night as the financial institution that borrowed £1.6 billion from the Bank of England’s credit facility – the second time this month that the high street bank has had to obtain emergency funding from the UK’s lender of last resort.

Barclays said that a technical glitch with the market settlement system forced it to turn to the central bank for funds. The identity of the bank with a £1.6 billion shortfall galvanised the City yesterday, coming amid renewed concerns about the willingness of banks to lend to one another.

Concern over solvency after the credit crisis have sent the cost of some borrowing between banks soaring. The London Interbank Offered Rate (Libor), at which banks lend between each other for 90 days, rose yesterday to 6.63 per cent. With the base rate expected to stay at 5.75 per cent over the next three months, analysts said that the huge premium for borrowing was a sign that banks were refusing on a huge scale to lend to one another, despite the clear opportunity for profit.

The loan on Wednesday night was the third-largest borrowing from the Bank of England this year, exceeded only by a £3.9 billion loan in June and a £1.9 billion loan in July. The Bank has granted short-term credit worth almost £10 billion this year.

Barclays accessed the Bank’s so-called standby facility after a mal-function at Crest caused the electronic settlement system’s interface with the Bank of England to fail at 2.30pm on Wednesday. When the system restarted at 3.30pm, Barclays, one of the UK’s biggest clearing banks, saw that it had a sterling shortfall.

All banks must ensure that their Bank of England accounts are in the black by 4.20pm. Sources said that Barclays tried to borrow in the wholesale market but failed, in part because of other banks’ reluctance to lend at any cost. Potential lenders were also hampered by their own problems with Crest, which made it difficult for them to see whether they had surplus cash to offload.

A statement from Barclays last night played down the significance of the borrowing, saying: “At the end of the day there was excess liquidity in the money markets where bank reserves were larger than bank borrowings. There are no liquidity issues in the UK markets. Barclays itself is flush with liquidity. In these challenging times the dramatisation of such situations is of no help to markets, their members or their customers.”

A spokesman for Euroclear, the owner of the Crest system, said yesterday that no client had reported any settlement problems. "We were back to normal within an hour," the spokesman said. "To ease clients' end-of-day transaction processing, we extended our deadline by an hour.”

It is not unusual for banks to use the Bank of England’s facility, but tension any settlement problems. “We were back to normal within an hour,” the spokesman said. “To ease clients’ end-of-day transaction processing, over the use of emergency credit 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 finance.

A number of British banks have been hit as investors desert the markets for asset-backed commercial paper and syndicated leveraged loans.

This month Barclays was forced to borrow £314 million from the Bank of England after HSBC could not process a last-minute request for a loan in time for Barclays to settle its account at the Bank.

Speculation yesterday that Barclays was behind the latest borrowing sent the bank's shares down 21/2p to 5971/2p each. The Bank of England's facilty lends at a penalty rate of 6.75 per cent. The Bank has asked banks not to talk about their use of the facility.

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