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BoE offers up £5bn of cheap loans

The Bank of England has launched a multibillion pound scheme to boost cash flow at Britain’s biggest banks, with full take-up from UK lenders.

The Press Association reports that the Bank has offered £5 million in loans with a rate of 0.75%. All major banks applied for the six-month loans, but it is believed that they were instructed to do so by bank Governor Mervyn King.

It is believed that he wants the facility to be viewed as a mainstream source of funding rather than an emergency measure.

The facility is set to be activated by the Governor at least once a month, as one of the measures designed to bolster the economic recovery.

The funding scheme is known as the extended collateral term repo operation, and allows banks to borrow central bank funds in return for lower quality assets than would traditionally be used, including residential mortgage-backed securities, credit card debt and student and consumer loans.

The British Bankers’ Association has already offered its support to the scheme.

This was posted in Bdaily's Members' News section by Ruth Mitchell .