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19th Jan 2009
£50bn Bank of England fund to try and get banks lending again
The chancellor Alistair Darling has announced today that he has set up a £50bn Bank of England fund to try and get banks lending again.
The Bank of England will set up an asset purchase programme implemented through a specially created fund to purchase high quality private sector assets.
These would include paper issued under the Credit Guarantee Scheme, corporate bonds, commercial paper, syndicated loans and a limited range of asset backed securities created in viable securitisation structures.
The Treasury will authorise initial purchases of up to £50bn, financed by the issue of Treasury bills. Given the scale of the programme, the Bank will be indemnified by the Treasury.
The Monetary Policy Committee will also be able to use the facility as a way hitting inflation targets. The programme will come into effect from February 2.
Darling, speaking on the BBC's Today show this morning, says that the main aim is to get bank's lending to each other again.
He says: “We are creating a £50bn fund for the Bank of England to help lending to the larger companies in this country which have had problems at being able to get borrowing at reasonable prices.
"In addition to that we are prepared to guarantee new lending for mortgages and also business lending for up to £50bn as well.
"In relation to all these things, the Bank of England, ourselves, will get security in return for that loan, and these assets can be sold when the economy starts to recover.”
The government is also looking at a number of other measures to stimulate lending.
These include:
* Extending the draw down window for new debt under the Government’s Credit Guarantee Scheme which is designed to reduce the risks on lending between banks.
* Establish a new facility for asset backed securities.
* Extend the maturity date for the Bank of England’s Discount Window Facility which provides liquidity to the banking sector by allowing them to swap less liquid assets.
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