Barclays/interbank

If the currencies had been the same, no one would have believed Barclays. On Thursday, it emerged that the UK bank had been forced to borrow £1.6bn from the Bank of England’s emergency lending facility. On Friday, Barclays said it would lend $1.6bn to a structured credit vehicle that was no longer able to borrow in the commercial paper market. The explanation turned out to be a blend of coincidence and, arguably, incompetence, rather than a big lender in trouble. The episode has, however, damaged the Bank’s new money market system.

For the second time in a fortnight Barclays says a technical glitch – this time with the Crest settlement system – forced it to borrow from the facility. As proof that the market as a whole was not working, it points out that other, undisclosed, banks were forced to deposit cash in the Bank’s emergency facility on Wednesday. As proof that the market is now working, Barclays says it is again borrowing actively from other banks, at about the market overnight rate.

The bail-out of a structured credit fund is hardly edifying – Standard and Poor’s notes that Barclays was “instrumental” in the creation of this now pilloried market. But, even if structured credit valuations bear only a marginal relationship to reality, the potential exposure to losses and regulatory capital demands is low.

Rival banks having a laugh may find, though, that Barclays’ comedy of errors comes at their expense. In the past fortnight, by twice revealing the circumstances of its use of the emergency facility, Barclays has set an unfortunate precedent. The facility, created only this year, comes with a condition of anonymity. This may prove to be unrealistic but without it a genuinely troubled lender would not approach the Bank. Barclays finds itself in a wretched position. Alone among 57 eligible institutions it has elected to tap the Banks’ emergency window. But simultaneously its actions have undermined the utility of this new mechanism if another bank really does run into trouble.