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Government package to support lending
- Published: Monday, 19 January 2009
With the global economic downturn intensifying in the past two months, the government is announcing a comprehensive package of measures designed to reinforce the stability of the financial system, to increase confidence and capacity to lend, and in turn to support the recovery of the economy.
These measures aim to address the current barriers to lending by:
Credit guarantee scheme
The government is extending the drawdown window for new debt under the Credit Guarantee Scheme (CGS) which is designed to reduce the risks on lending between banks.
Guarantee scheme for asset backed securities
In addition the government is announcing a new guarantee scheme for asset backed securities to improve banks' access to wholesale funding markets, help support lending, and promote robust and sustainable markets over the longer-term. The government will provide full or partial guarantees to be attached to eligible triple-A rated asset-backed securities, including mortgages and corporate and consumer debt.
Mortgages and Northern Rock
To address the loss of mortgage lending capacity in markets, the government confirms that Northern Rock is no longer actively pursuing a policy of rapidly reducing its existing mortgage book.
Bank of England liquidity facilities
The Bank will extend its Discount Window Facility, with its maturity increasing from 30 days to 1-year for an incremental fee of 25 basis points. This will enable banks to continue to have access to long-term liquidity on demand.
Bank of England asset purchase facility
As a further step to increase the availability of corporate credit the Bank of England will set up an asset purchase programme. The Bank will be authorised by the Treasury to purchase high quality private sector assets, including paper issued under the CGS, corporate bonds, commercial paper, syndicated loans and a limited range of asset backed securities created in viable securitisation structures. The Treasury will authorise initial purchases of up to £50 billion, financed by the issue of Treasury bills.
Asset protection scheme
The government is announcing that it will offer capital and asset protection on those assets most affected by the current economic conditions. This will reduce banks' uncertainty about the value of past investments, so providing them with greater confidence to lend in the future to creditworthy businesses, homeowners and consumers.
Under the scheme, in return for a fee, the Treasury will provide protection against future credit losses on portfolios of defined assets to the extent that credit losses exceed a "first loss" amount to be borne by the institution.
Capital regulation
The Financial Services Authority (FSA) is publishing a statement clarifying its expectations around bank capital ratios. The FSA's statement makes clear that there are no new statutory requirements for the capital held by the banks.
