Bank launches liquidity scheme

Published: April 21, 2008

The Bank of England has launched a new scheme which it hopes will ease the global credit crisis.

There is a chance that the plan will bring sub-prime mortgages back onto the market as banks become more confident about who they lend to.

According to the Bank, UK banks will be allowed to temporarily swap their high-quality mortgage assets for UK Treasury Bills.

However, the Bank has protected itself from any future difficulties by ensuring that the banks maintain the risk of any losses on the loans.

Bank of England governor Mervyn King said that he hopes the new scheme will free up the markets.

"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," he commented.

It is hoped that banks will be more willing to lend to customers as a result of the plan and this could, in theory, lead to more sub-prime mortgages coming back onto the market.