Bank to detail £50bn bonds plan

The Bank of England is to announce details later of a plan to help prevent the credit crisis causing more damage to the UK banking system and economy.

Banks will be given the chance to swap their mortgages for about £50bn worth of government bonds to enable them to operate during the credit squeeze.

Ministers hope the plan will alleviate problems in the mortgage markets.

BBC business editor Robert Peston said the move could be seen as a "U-turn" by the usually conservative lender.

'Ambitious plan'

Our correspondent said under the scheme banks would be allowed to swap their mortgages for government securities.

He said the scheme could be the world's most generous plan to pump money into the banking system.

This was especially so because the Bank of England was regarded as more conservative in its financial support for banks than the Federal Reserve in the US and the European Central Bank, he added.

The Bank is expected to say later that it expects around £50bn of these securities to be issued to banks in the first instance, but that it would be prepared to provide more help if required.

On Sunday, Chancellor Alistair Darling said that without the Bank of England's intervention, there was "every chance" the UK's financial crisis would get worse.

He confirmed the Bank would be setting up a scheme to help banks operate during the credit squeeze but insisted the loans would have to be paid back.

Sub-prime problems

Mr Darling will reveal the full details of the rescue plan to MPs in the House of Commons after the announcement by the Bank.

British banks have become increasingly unwilling to lend to one another as a result of the credit crisis, which was sparked by massive losses for banks who lent in the US sub-prime sector.

Many investors, concerned about what happened to sub-prime mortgages in the US, no longer want UK mortgage-based assets and the disappearance of this market has deprived banks of tens of billions of pounds of finance for mortgage lending.

It is one of the main reasons why the cost of mortgages for many homeowners has been rising, even though the Bank of England has been cutting its base lending rate.

Source: http://news.bbc.co.uk/2/hi/business/7357880.stm