8 Oct

Government unveils banking liquidity plan

Government unveils banking liquidity plan

Chancellor of the exchequer Alistair Darling has announced a new plan to bolster the UK financial sector, which includes making available £200 billion of extra liquidity.

Mr Darling revealed today that the government will provide £50 billion in capital to the largest institutions in return for stakes in them.

In addition to this, there will be another £200 billion of liquidity available to them via the Bank of England, something that could increase the supply of mortgage finance.

Commenting on this move, the chief executive of money brokers Tullett Prebon, Terry Smith, told the BBC: "They've [banks and building societies] got additional capital now if they want it, they've got an unlimited source of liquidity."

The measure is the second initiative launched through the Bank of England to help high street institutions overcome their unwillingness to lend to each other during the credit crunch.

In April the Bank unveiled its initial Special Liquidity Scheme, which offered up to £50 billion in funding by allowing for the swapping of mortgage-backed securities for Treasury bills.
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