Menu
11/09/2008
BoE Outlines Plans To Special Liquidity Scheme
The Governor of the Bank of England Mervyn King has announced it is issuing a new lending scheme next week, but warned it would not provide long-term funding for banks who have raised billions in a bid to strengthen their finances since the credit crunch hit.
The Special Liquidity Scheme will allow banks to swap hard-to-trade mortgage assets for one-year government debt for a six month period. The debt can be rolled over for up to three years.
Speaking to MP's on the Treasury Select Committee, Mr King said: "In the UK we face a difficult, but temporary, period during which inflation will remain high for a while and output growth at best weak.
"Perhaps of even greater significance for demand, real take-home pay has been squeezed by rises in energy and food prices, so holding back household spending.
"My view certainly is that we are going to see a large increase in unemployment. The October numbers are going to start to see a big kickthrough and that is going to be an unpleasant shock."
The Debt Management Office will supply the Bank of England with the necessary Treasury Bills. Banks will be able to swap for those Bills a range of high-quality assets, including AAA-rated securities backed by UK and European residential mortgages. But to prevent banks relying on the Scheme to finance new lending, they will be able to swap securities formed only from loans that were already on their balance sheets at the end of 2007.
Given its scale, the Scheme is indemnified by the Treasury, but is designed to avoid the public sector taking on the risk of potential losses. Banks will need, at all times, to provide the Bank of England with assets of significantly greater value than the Treasury Bills they have received. If the value of those assets were to fall, the banks would need to provide more assets, or return some of the Treasury Bills. And if their assets pledged as security were to be down-rated, the banks would need to replace them with alternative highly-rated assets.
Usage of the scheme will depend on market conditions. Discussions with banks suggest that use of the scheme is initially likely to be around £50bn.
(CD/JM)
The Special Liquidity Scheme will allow banks to swap hard-to-trade mortgage assets for one-year government debt for a six month period. The debt can be rolled over for up to three years.
Speaking to MP's on the Treasury Select Committee, Mr King said: "In the UK we face a difficult, but temporary, period during which inflation will remain high for a while and output growth at best weak.
"Perhaps of even greater significance for demand, real take-home pay has been squeezed by rises in energy and food prices, so holding back household spending.
"My view certainly is that we are going to see a large increase in unemployment. The October numbers are going to start to see a big kickthrough and that is going to be an unpleasant shock."
The Debt Management Office will supply the Bank of England with the necessary Treasury Bills. Banks will be able to swap for those Bills a range of high-quality assets, including AAA-rated securities backed by UK and European residential mortgages. But to prevent banks relying on the Scheme to finance new lending, they will be able to swap securities formed only from loans that were already on their balance sheets at the end of 2007.
Given its scale, the Scheme is indemnified by the Treasury, but is designed to avoid the public sector taking on the risk of potential losses. Banks will need, at all times, to provide the Bank of England with assets of significantly greater value than the Treasury Bills they have received. If the value of those assets were to fall, the banks would need to provide more assets, or return some of the Treasury Bills. And if their assets pledged as security were to be down-rated, the banks would need to replace them with alternative highly-rated assets.
Usage of the scheme will depend on market conditions. Discussions with banks suggest that use of the scheme is initially likely to be around £50bn.
(CD/JM)
Related UK National News Stories
Click here for the latest headlines.
05 May 2011
Bank Of England Maintains Bank Rate At 0.5%
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion. The previous change in Bank Rate was a reduction of 0.5 percentage points to 0.
Bank Of England Maintains Bank Rate At 0.5%
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion. The previous change in Bank Rate was a reduction of 0.5 percentage points to 0.
15 October 2015
New BoE And Financial Services Bill Published
The government has published a new Bank of England and Financial Services Bill, aimed at strengthen the governance and accountability of the Bank, update resolution planning and crisis management arrangements between the Bank and Treasury, and extend the principle of personal responsibility to all sectors of the financial services industry.
New BoE And Financial Services Bill Published
The government has published a new Bank of England and Financial Services Bill, aimed at strengthen the governance and accountability of the Bank, update resolution planning and crisis management arrangements between the Bank and Treasury, and extend the principle of personal responsibility to all sectors of the financial services industry.
07 November 2013
Bank Of England Maintains Bank Rate At 0.5%
The Bank of England's Monetary Policy Committee has voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375bn.
Bank Of England Maintains Bank Rate At 0.5%
The Bank of England's Monetary Policy Committee has voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375bn.
22 April 2008
Darling And Flint To Meet Mortgage Lenders To Discuss Credit Crunch
Chancellor Alistair Darling and Housing Minister Caroline Flint are to meet mortgage lenders later today to discuss ways to help homeowners to survive the credit crunch. The Bank of England has launched a scheme to allow banks to swap temporarily their high quality mortgage-backed and other securities for UK Treasury Bills.
Darling And Flint To Meet Mortgage Lenders To Discuss Credit Crunch
Chancellor Alistair Darling and Housing Minister Caroline Flint are to meet mortgage lenders later today to discuss ways to help homeowners to survive the credit crunch. The Bank of England has launched a scheme to allow banks to swap temporarily their high quality mortgage-backed and other securities for UK Treasury Bills.
15 September 2011
Gov Closes Dividend Loophole
The Government has today announced it is introducing new legislation, effective from Thursday, to block a potentially lucrative tax avoidance scheme for businesses.
Gov Closes Dividend Loophole
The Government has today announced it is introducing new legislation, effective from Thursday, to block a potentially lucrative tax avoidance scheme for businesses.
-
Northern Ireland WeatherThis Evening and Tonight:A dry night, save for a few light showers around the coasts, with prolonged clear spells and light winds bringing a frosty dawn for many in central and southern parts. Minimum temperature -3 °C.
