Banks demanded almost three times the sum that the Bank of England was prepared to auction in its weekly open market operation this morning, the second week in a row that the auction was hugely oversubscribed.

The Bank said that it received bids worth £37.8 billion for the £13.6 billion up for grabs, which means that banks received just over 36 per cent cent of the sum that they requested.

Britain's banks are keen for the cash because there is no penalty rate to pay on the money, which is lent at the bank rate of 5.25 per cent.

Last week the Bank's £10.9 billion auction received bids worth £30.3 billion.

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BACKGROUND

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The central bank uses the weekly auction to provide British banks with sufficient cash to maintain their reserves at a level previously agreed with the Bank.

The Bank agreed last week to supply an extra £5 billion every week until April 9 to satisfy the banks' thirst for liquidity.

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