According to a report published in the Financial Times this morning, the U.K.'s financial services regulator repeatedly urged the Bank of England to intervene in money markets in order to avoid a crisis of confidence for U.K. mortgage lenders. Weeks before Northern Rock announced that it was in need of an emergency loan, the Financial Services Authority asked the Bank of England to act. According to the report, the regulator noted that the central bank should accept a wider range of collateral against loans it made to banks. Both the European Central Bank and the Fed accept mortgage-backed securities, named specifically by the Financial Services Authority, as collateral.

Reportedly, the Bank of England argued that a moral hazard would be created by relaxing its standards because bailing out banks without them paying any penalty would encourage further risk-taking in the future. Today, the British central bank did let up on the issue of collateral a bit, announcing that it will inject roughly $20.02 billion into markets next week and will accept mortgages as collateral.