Barclays today said it was considering raising funds from the markets instead of the British taxpayer but analysts warned that it may be disappointed as investors snub banks.

The bank, led by chief executive John Varley, said it was “considering a number of options” including private sources to raise the funds needed to shore up its balance sheet.

It came as Abbey ploughed £1 billion into the frozen money markets as the industry upped its efforts to break the lending deadlock between banks.

However, interbank lending rates rose again as the markets remained gripped by fear.

The Government this week demanded that all banks bolster their Tier 1 capital, a key measure of financial strength, by an aggregate £25 billion.

It was in the £500 billion bailout plan in which the Government offered to plough up to £50 billion into British banks in exchange for preference shares.

Barclays today said: “Barclays confirms that it is considering a number of options, including capital raising, relating to the industry-wide commitment to increase capital in the sector.”

Among the options Barclays is thought to be considering is the sale of preference shares to existing investors and an injection of funds from backers in the Middle East and Asia such as the Qatar Investment Authority, China Development Bank and Singapore's Tamasek.

But with sentiment around the banks so weak, analysts warned it may have to turn to the taxpayer and take up the Government's recapitalisation offer along with its rivals.

Alex Potter of Collins Stewart said: “I think Barclays and RBS have a better chance than Lloyds TSB and HBOS but it is not easy for anyone at the moment.”

Citigroup reckons Barclays and Royal Bank of Scotland need to raise as much as £10 billion each, HBOS £5 billion and Lloyds TSB £2.5 billion to reach the Government's requirements.

HSBC has already injected £750 million into its UK business from within the group to meet Government demands.

Lending rates between banks rose again despite the intervention by Abbey, the Government bailout, and this week's emergency cut in interest rates. Three-month sterling libor, the rate at which banks lend pounds to each other, rose from 6.281% to 6.285%, leaving it well above the official rate of 4.5%. The dollar rate jumped to a new year high of 4.819%.

George Buckley of Deutsche Bank said: “The banks are still clearly not happy about lending to each other because of the risk that entails especially over long periods of time.

"Three months is a long time in economics at the moment.”
Philip Shaw of Investec said: “The interbank markets are effectively closed and that is putting huge upward pressure on Libor.

There has been an increasing climate of nervousness in capital markets over the last couple of days despite the measures the Government and the Bank of England announced on Wednesday.

"For now the mood is very, very nervous.”