Mortgages Uncovered

Mervyn King, Bank of England Governor will be announcing his new liquidating scheme for boosting mortgage market next week.

Last week, Bank of England launched a brand new scheme that allows our banks to temporarily swap (temporarily), their higher quality mortgages and some other securities for the UK Treasury Bills.
Now that the markets relating to many of these securities are currently shut, the banks have now got overhand on their balance sheets and they are stuck with assets that they can’t sell as security to raise more funds.

The financial situation has been such that bank’s are too stretched by the assets that cannot sell so therefore, have been very reluctant to make any new loans to the public and even to each other.
Under the new government scheme, it will now mean that banks will be able for a limited period, swap illiquid assets of high enough quality for the Treasury Bills. The responsibility of their loans will still stay with the banks.

The aim of the scheme is to boost the liquidity position of the banking system which in turn is expected to increase far more confidence into the financial markets.

Mr. King stated that this was a short term measure but would help make available further finance for banks and their mortgages.