Britain's Barclays Plc has turned to the Bank of England as the lender of last resort for the second time last month after at technical breakdown in the UK clearing system, a source close to the matter said.
The Bank of England said it had supplied almost £1.6 billion in its third largest loan this year as lender of last resort, but did not name the borrower or borrowers.
Barclays declined to confirm it had used the central bank's standing borrowing facility, but said in a statement it saw no liquidity issues in the UK market and was itself "flush with liquidity."
"People are sensitive to any emergency borrowing in the current climate but this looks more likely to have been a systems problem than a systemic one," said Steve Pearson, chief strategist at HBOS Treasury Services.
The source did not confirm whether Barclays was the only borrower or whether other banks had also been involved.
"The Bank of England sterling standby facility is there to facilitate market operations in such circumstances. Had there not been a technical breakdown, this situation would not have occurred," a spokesman for Barclays said in a statement.
"In these challenging times the dramatisation of such situations is of no help to markets, their members or their customers," he said.
Several market participants said problems with the CREST settlement system on Wednesday may have been to blame for liquidity problems in European markets.
Euroclear, owner of the CREST interbank payments system, acknowledged there had been a technical problem but said no client had reported any settlement issues.
"We had a disruption early afternoon on Wednesday but we were back to normal within an hour," said Euroclear spokesman Denis Peters. "To ease clients' end-of-day transaction processing, we extended our deadline by an hour."
The Bank of England's standing facility allows lending institutions to borrow unlimited amounts of money, but they must pay one percentage point above the base rate. It is not uncommon for banks to use the facility, but the recent global credit squeeze has prompted speculation it may have been used due to liquidity problems.
Use of the Bank's facility, which has already been tapped 14 times since the start of the year, does not necessarily mean an institution is in trouble, despite the fact that turbulence in credit markets has made banks reluctant to lend to each other.
The Bank of England's standby facility was last tapped just over a week ago to the tune of £314 million. Sources familiar with the matter said then the borrower was also Barclays.
Standard & Poor's said earlier Barclays' AA rating was not affected by the reports of its exposure to structured investment vehicles (SIVs) but said that if current valuations of even highly rated mortgage-backed securities persist, banks including Barclays may face substantial mark-to-market losses.
SIVs are off-balance sheet entities, commonly funded by commercial paper, which often are used to investment in higher yielding US mortgage-linked securities.
Wednesday's lending of £1.556 billion was the third largest this year.
The Bank of England lent almost £4 billion on June 29 and just under £2 billion on July 2.
The US Federal Reserve recently lowered its down discount rate, for borrowing directly by banks, and encouraged US banks to use its facility for similar reasons.