BANK OF ENGLAND SWAPS BONDS TO REVIVE BANK LENDING
April 21st, 2008How long can the game of make believe continue? Until is doesn’t, I guess. For now, dig the hole deeper.
Sterling slammed vs. dollar and euro.
Via: Bloomberg:
The Bank of England offered to swap government bonds for mortgage securities to kick-start bank lending, with Governor Mervyn King pledging to meet demand even if it exceeds an estimate of 50 billion pounds ($100 billion.)
“There is no arbitrary limit on this so it could well go higher,” King told reporters in London today. He said the plan aims to restore confidence to the banking system and the most important aspect of the scheme is that “everyone needs to know this is there for them to access as needed.”
The banks will retain responsibility for losses from the assets they loan to the Bank of England. The swaps will be for a period of one year, renewable for up to three years. Only assets existing at the end of 2007 can be used in the swap.
The measures, backed by Prime Minister Gordon Brown’s government, mimic a similar swap of $200 billion of securities by the U.S. Federal Reserve last month. Policy makers are attempting to encourage lending after a surge in borrowing costs prompted British institutions to withdraw their best mortgage offers, threatening to exacerbate the worst housing downturn since 1992.
“We will make sure there is enough liquidity in the economy to make sure people can buy their own houses,” Brown said in a speech today in Inverness, Scotland.
