British banks have been borrowing unusually large amounts from the European Central Bank due to the Bank of England's reluctance to make extra funds available, a German newspaper reported on Friday.
Large British lenders are borrowing the cash from the ECB via continental European subsidiaries, the Financial Times Deutschland reported, without identifying the source of its information.
The banks are then using most of the funds to buy U.S. dollars as they are needed because of problems stemming from risky U.S. subprime mortgages, the paper said.
Central banks have poured cash into money markets over the past month to ease the liquidity squeeze but have stressed they are not bailing out investors who have bought into risky assets.
The ECB on Wednesday lent banks a record 75 billion euros in extra three-month funds. The tender was heavily oversubscribed, with 140 banks bidding for a total of 139.0 billion euros in refinancing in what is only the ECB's second ever injection of three-month funds outside its normal monthly schedule.
The Bank of England has attracted criticism from some financial institutions for its hands-off response to the credit market turmoil. It said earlier this week it would only provide support to institutions facing short-term liquidity problems, and would not bail out insolvent companies.
On Friday, the Bank of England said it had offered an emergency loan to Northern Rock after the mortgage lender became the biggest British casualty so far of the credit squeeze.