- The Washington Times - Tuesday, April 22, 2008

LONDON (AP) — The Bank of England unveiled a rescue package worth at least $100 billion for Britain’s financial system yesterday, making one of the biggest moves by a central bank worldwide to shore up confidence amid the global credit crisis.

The British central bank hopes its biggest-ever funding injection, to be made via a swap of assets, will increase liquidity — and in turn ease restrictions in the mortgage market that have made home loans more expensive — by encouraging interbank lending.

Bank of England Governor Mervyn King underscored the bank’s focus on restoring confidence by promising to meet demand even if it exceeds the $100 billion level.

“There is no arbitrary limit on this, so it could well go higher,” Mr. King said.

Analysts said the plan would have some positive impact in the short term, but they added that restrictions on the swap of assets and punitive terms on the offer might reduce demand from banks. The mortgage industry was also dubious about the proposal’s success in bringing down home loan costs.

Mortgage lenders have tightened lending criteria and increased home-loan rates, despite two Bank of England rate cuts.

That has contributed to a significant slowdown in house prices across Britain.

The Bank of England hopes this situation will improve as banks use the more secure government bonds to restart lending among themselves. With more liquidity in the system, lending restrictions in the property market could then be eased.

The Bank of England will offer the swaps for a period of one year, renewable for up to three years. Only assets existing at the end of 2007 can be used in the swap.

The banks will keep responsibility for losses from the assets they loan to the Bank of England and must give the central bank assets of significantly greater value than the Treasury bills they have received.

Treasury chief Alistair Darling said the plan would support domestic lending while the global financial system remains turbulent.

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