After the European Central Bank (ECB) poured liquidity into the continental banking sector last August, the Bank of England has decided to trundle to the rescue of the banks with a £50bn package. Those wonderful institutions, full of overpaid executives, will be able to swap mortgage loans and credit card balances for
UK government bills. Apparently, this will encourage the banks to lend to each other.
One story is that the package would have helped stave off the Northern Rock collapse.
However, this has been denied, I think by Bank of England sources, who said the Newcastle-based institution was far too gone.
People get the feeling that Bank of England governor Mervyn King wanted the commercial banks to suffer a bit of pain and maybe that will still happen. I wonder if the banks will get away with raising dividends.
Mervyn King, Governor of the Bank of England, said “The Bank of England’s Special Liquidity Scheme is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks.”