BoE to offer 5 billion pounds of funding to banks on Wednesday

The Bank of England said it would offer 5 billion pounds of six-month funding at its first extended collateral term repo operation (ECTR) on Wednesday, designed to provide liquidity to British banks affected by the euro zone debt crisis.

Last week the Bank Governor Mervyn King said that he was activating the scheme, which was set up in December and originally intended to offer one-month funds, as part of efforts to kick-start Britain's faltering recovery.

It allows banks to borrow central bank funds in return for lower-quality collateral than they would usually be able to use, including residential mortgage-backed securities, securitised credit card debt, student and consumer loans and some types of asset-backed commercial paper.

Five billion pounds a month was the minimum amount the Bank said that it would provide, but many analysts had expected more

Short sterling futures - which rose by around 20 ticks after the ECTR was activated last week - fell by around 5 ticks after the news of the operation's size to turn negative on the day. Gilt futures also extended losses.