Uk Mortage Securities
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The housing market will not see a return to the profligate mortgage lending practices of the past few years, the governor of the Bank of England insisted on Monday as he announced a massive operation to support liquidity in British banks.
Making an almost unlimited offer to acquire UK banks’ mortgage-backed securities for up to three years in return for Treasury bills, Mervyn King said the plan would “take the liquidity issue off the table in a decisive way”. But he warned that the objective of the plan was neither to persuade banks to start lending again nor stand in the way of a housing market correction.
Alistair Darling, UK chancellor, has told MPs that the Bank of Englands latest operation will help resolve problems in the wholesale financial markets and in turn assist businesses, individuals and the mortgage market
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King puts his stamp on liquidity scheme – Apr-21Darling denies banks given ÐЈ50bn вЂ?subsidy’ – Apr-21Building societies see pressure ease – Apr-21Lenders warn era of cheap deals is over – Apr-21Video: Peter Thal Larsen on the Bank’s plan – Apr-21Bank shares fall as investors digest details – Apr-21His stern words contrasted with those of Alistair Darling, the chancellor, who told Parliament he hoped: “This [scheme] will help alleviate the problems that have seen banks reluctant to lend to each other and in turn support the provision of new mortgage lending.”
For the next six months, the Bank will offer to acquire asset-backed securities from banks in exchange for Treasury bills. Based on conversations with commercial banks, the Bank expects to swap ÐЈ50bn assets in the first couple of months.
With stiff conditions on the deal and a high price on use of the facility, the Bank believes it has ensured only a minimal risk for taxpayers. It wants financial markets to be sure that solvent British banks will be able to settle their debts in future without any fear they will be struck down by shortages of liquidity.
In so doing, Mr King insisted his aim was to underpin the financial system rather than bail out banks and building societies or support new mortgage lending. “The objective is not to protect the banks but to protect the public from the banks,” the Bank governor said, although he said he hoped a side-effect of the scheme would be to bring down interbank borrowing rates.
British bankers on Monday agreed that the plan would help to restore confidence to the sector. Stephen Green, chairman of HSBC, said: “At an industry level, the Bank of England initiative will help ease