In a move to give it more flexibility in the use of its capital, The Bank of Bermuda has arranged a $500 million credit facility in the US.

Mellon Bank, Deutsche Morgan Grenfell, and J.P. Morgan are backing the loan facility -- a first for the bank -- with commitments of $100 million each. The rest of the $200 million is being backed by a number of other international banks.

"This backup facility in effect doubles the bank's capital,'' Bank of Bermuda Chief Financial Officer Edward Gomez said yesterday. "It's a committed line of credit which we can call on at any time for any general corporate use.'' As at March 31 the bank had a $428 million capital base. The backup facility will help assure clients of the bank's access to capital needed to protect their assets in case something -- such as a run on deposits -- affected the bank's ability to meet its committments.

Since there is no lender of last resort in Bermuda, clients consider the bank's capital base as its backing. Now they will be able to add the $500 million credit facility into the mix.

"In Bermuda, people think of the bank as big and growing, but compared to other banks in terms of capital we are not,'' Mr. Gomez said. "When clients want to do business they want to make the safe choice of a big bank or someone with big capital.'' In the US, banks have the Federal Reserve system for loans if they have liquidity problems, while UK banks can use the Bank of England as a lender of last resort.

"While we don't expect to have to use this facility, it serves as a synthetic lender of last resort,'' he said. "It's prudent financial management.'' The credit facility will also give the bank more flexibility in managing its capital. Currently the bank keeps its capital ratio higher than international standards to help alleviate any client concerns.

The bank's capital ratio -- the risk weighted capital it can call on in relation to assets -- was 13.7 percent as of March 31. International standards specify an eight percent ratio, while Bermuda requires a ten percent capital ratio. The bank has a self-imposed 12 percent guideline.

"The facility gives us flexibility to manage our capital more efficiently,'' Mr. Gomez said.