Bank of England expands loan scheme
Friday, 03 Oct 2008 15:00
Mervyn King said the Bank will "take all actions necessary"
The Bank of England is expanding the range of collateral it will accept as security against loans made to banks.
The central bank, which has been making weekly loans available to banks squeezed by the lack of credit available on the money markets, said the action is "addressed to the ongoing strains in term funding markets".
Banks will now be allowed to use some corporate and consumer loans as collateral, making it easier to borrow from the central bank.
Until now, they could only use mortgage-backed securities, which would not be accepted by other banks.
According to a spokesperson, the Bank of England is not taking on any additional risk by widening the range of assets that can be used as security as they will all be triple-A rated, the highest quality rating.
The move will help more banks to use the facility, the bank said.
Mervyn King, governor of the Bank of England, said: "In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity."
However, they will have to pay a minimum 0.5 per cent more interest to use the facility.
The Bank of England also said it will auction £40 billion of loans next Tuesday, with the weekly cash injections available to banks until the situation improves.