Banks ask for more 'rescue' money
Updated on 11 July 2008
Some of the UK's biggest banks are meeting the Bank of England to reportedly press for more help under its £50 billion credit crunch rescue package.
Banking bosses are said to be lobbying for the terms of the central bank's multi-million pound Special Liquidity Scheme (SLS) to be widened as conditions worsen in crisis-hit mortgage markets.
It was launched in April to encourage lending between banks and building societies, ultimately with the aim of easing mortgage terms and rates for home buyers impacted by the credit squeeze.
But since then the mortgage market in the UK has contracted further, with lending levels plunging to historic lows, mortgage rates on the rise and warnings of further lending cut backs in the coming months.
Libor - the main lending rate between banks - has also remained high.
The retail banks are expected to argue that the SLS has not done enough to restore confidence among banks and that more of their illiquid assets need to be included.
It currently allows banks to trade in mortgage-backed securities that were in existence before the start of this year, in return for Government bills which are more likely to be traded on the financial markets.
One option tabled could be extending the scheme to include mortgages written this year. The SLS was set up as a £50 billion facility, but the Bank put no official ceiling on the amount of Government securities that could be supplied to liquidity-starved banks.
There is speculation that the funds swapped under the scheme may have already reached as much as £70 billion. A widening of the terms of the SLS could meet opposition from the Bank of England.
Finance directors and the heads of Treasury departments from a raft of high street banks are attending the meeting, along with Bank of England executives from the markets division.
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