Oct. 28 (Bloomberg) -- Coordinated efforts by central banks to boost liquidity in global markets are failing as lenders hoard cash, according to an index compiled by the Bank of England for its semi-annual financial stability report.

The CHART OF THE DAY shows the U.K. central bank's Financial Market Liquidity Index, which gauges how far a basket of nine indicators strays from its mean value. Those measures include gaps between bid-and-offer prices on bonds, currencies and stocks, the ratio of returns to trading volumes, and spreads in the credit market. The Bank of England calculates the index twice a year, with the current level updated to Oct. 17.

When the bank introduced the index in April 2007, liquidity was at its highest level in at least 17 years, and had doubled in the previous four years. The shaded green areas highlight periods of increasing liquidity, while the red areas illustrate contraction.

``The recent fall in the indicator is largely due to a sharp decline in the interbank market liquidity measure,'' the Bank of England said in its report. ``Banks will need to adjust their balance sheets and funding models, weaning themselves off current high levels of official sector support. Lending growth is likely to remain slower than in recent years.''

To contact the reporter on this story: Mark Gilbert in London at magilbert@bloomberg.net

Last Updated: October 28, 2008 08:56 EDT