Lender of last holiday resorts

According to today's FT, Spanish Banks are having to turn to the European Central Bank for funding to compensate for the more challenging conditions in wholesale markets. Unlike UK counterparts [Northern Rock aside], they can lodge mortgage backed securities as collateral for their ECB borrowings which other lenders are shunning or imposing high "haircuts" [discount attributed to collateral provided to cover a loan, similar to mortgage sum compared to house value].

This is significant for two reasons. Firstly it places UK banks at a competitive disadvantage to their European rivals since they can use their collateral more effectively - might even given rise to an arbitrage opportunity for European banks of taking in mortgage backed at a high haircut and then lodging it at a lower rate with the ECB. Secondly, it distorts the price in the market by removing some supply that would otherwise have come to market.