Bank set to act over credit crunch

Posted: 17 Apr 2008 12:16:50 GMT

The Bank of England is on the verge of launching a new lending programme for UK banks which could ease the credit crunch.

The Bank of England is on the verge of launching a new lending programme for UK banks which could ease the credit crunch.

Reports from the BBC say that the plan will see banks given the opportunity to swap their mortgage assets for government bonds.

It is hoped that this will encourage banks to lend to each other at lower rates, using the bonds as security.

In the past, mortgage assets were used as security on inter-bank lending but since the collapse of the US market banks no longer see these as secure.

As a result, lending between banks has either dried up or now takes place at high rates.

The hope is that by removing the mortgage assets and their assumed risks, banks will begin lending to each other again.

This, in turn, should lead to more mortgages becoming available on the market and at more affordable rates.

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