UK banks urge BoE to be generous and flexible

By Steve Slater and Christina Fincher

LONDON (Reuters) - Britain's top bankers urged the Bank of England (BoE) to be more generous and flexible to ease tensions in fragile money markets at a meeting on Thursday.

The central bank pumped an extra 5 billion pounds ($10 billion) into money markets on Thursday, but banks, facing their toughest period for over a decade, believe it must do more to restore confidence in Britain's financial system, according to bank industry sources.

The BoE said in a short statement after the meeting that it and the banks "agreed to continue their close dialogue with the objective of restoring more orderly market conditions."

Boosting banks' access to liquidity and limiting damage from rumour mongering topped the meeting of bank executives and officials, chaired by Bank of England Governor Mervyn King. Details of the talks were not disclosed.

After months of turmoil, the banking industry was shaken further on Wednesday by speculation that a bank faced liquidity problems. HBOS (HBOS.L: Quote, Profile, Research), the biggest UK mortgage provider, bore the brunt of the chatter and its shares plunged 17 percent.

HBOS slammed the rumours and authorities joined in with an unprecedented public reaction. The BoE said no bank was in trouble and the Financial Services Authority warned it will hunt out people spreading "unfounded rumours." [nL19116131].

By Thursday's close, HBOS had clawed back almost all of its loss, but investors remain jittery about UK banks.

The reaction by authorities showed they are more alert to worries than six months ago, when they were criticised for a tardy response to a crisis at Northern Rock, which has since been nationalised.