Bank launches £50bn rescue package

Posted: 22 Apr 2008 14:20:50 GMT

The Bank of England has launched a Special Liquidity Scheme with the aim of easing the credit crunch and making mortgages more readily available.

The Bank of England has launched a Special Liquidity Scheme with the aim of easing the credit crunch and making mortgages more readily available.

Banks are currently withdrawing mortgages from the market and increasing their rates because there is no liquidity in the market.

This has come about because banks are unwilling to lend to each other.

Usually, banks lend to each other in the knowledge that the borrower has mortgage assets which can be used as security.

However, following the collapse of the US mortgage market, these assets are no longer seen as safe so banks have stopped lending to each other.

Now the Bank of England has made £50 billion available in UK Treasury Bills which banks can use to swap for their high-quality mortgage assets.

It should free up the markets as banks can lend confidently again and this should bring more mortgages back to the high street.

"The Bank of England's Special Liquidity Scheme is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks," said Bank of England governor Mervyn King.

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