THE Bank of England yesterday said its ground-breaking mortgage swap plan with Britain's cash-strapped banks had no upper limit, after reports that the banks wanted £90 billion of assets to be exchanged.
This would be nearly double the central bank's initial forecast that £50bn would be set aside for the scheme by which banks will swap mortgage-backed assets – the source of the credit crunch – for Treasury bills.
A Bank spokesman said yesterday:
"As we made clear initially, there's no arbitrary limit on the size of the scheme.
"We expect initial use to be around £50bn. We are not speculating on the size of the scheme – that will reflect its use over time."
This is likely to be read as yet another sign that lending in the interbank market remains tight.
The London Interbank Offered Rate (Libor) – the rate at which banks lend to each other – was 5.84 per cent yesterday. The current base rate is 5 per cent.
The final amount swapped under the Bank's scheme will be made public when the six-month window of opportunity closes in October. The scheme is progressing well, according to sources familiar with the situation.
Analysts at Royal Bank of Scotland said in a note: "The £90bn estimate seems high, but extrapolating … circa £10bn (per bank] for the bigger UK players does get you to a gross figure in that ballpark. This assumes that all banks will want to play."
Details of which banks are accessing the facility are confidential, but a British Bankers' Association spokesman said "it wouldn't be surprising" if banks were accessing more funds, as there were still strains in the market.
Luke Hickmore, Scottish Widows Investment Partnership's director for corporate bonds, was not concerned about a figure as high as £90bn.
"The Bank of England is not taking any credit risk with this," he said. "It is not risky credit to risky borrowers."
The full article contains 325 words and appears in The Scotsman newspaper.
