Login to UKBP
Commercial Property News
BoE extends Special Liquidity scheme for a further 3 months for fear of withdrawal consequences.
The Bank of England will allow banks an extra three months to swap their risky assets for government paper, extending a scheme that was set to close next month because of the latest turmoil in financial markets.
The Bank Special Liquidity Scheme was launched on April 21 in order to help unblock jammed up money markets as banks were running scared of lending to each other, so fearful were they of each other's exposure to plunging U.S. real estate prices and other high-risk debt.
It was set to close to new lending in the week of October 20, though existing debts could be rolled over for up to 3 years. It will now remain open until January 30, 2009, the central bank said in statement on Wednesday, to give "additional time for banks to plan their access to the Scheme in an orderly fashion."
Certain banks such as Bradford & Bingley would probably collapse were it not for the scheme, so it's extension buys more time for the deal makers.
"It's a sensible move given the complete and total dislocation in money markets that we are seeing at the moment," said Michael Saunders, economist at Citigroup.
Bank Governor Mervyn King had said just last week that the SLS would close as planned but the situation has changed dramatically since with interbank markets freezing up once again a year after the global credit crunch first took hold.
The catalyst this week was the collapse of U.S. investment bank Lehman Brothers and its rival Merrill Lynch being sold. On Tuesday, the U.S. government had to rescue insurer AIG with an $85 billion loan.
As global stock markets tanked and interbank lending rates shot up by nearly two full percentage points in a day, shares in HBOS lost more than a third of their value and the company is now in merger talks with domestic rival Lloyds TSB, amid speculation the government brokered the deal.
King met both Prime Minister Gordon Brown and Chancellor Alistair Darling on Tuesday. The Bank said it had extended the drawdown period "in view of the current disorderly market conditions" and that all other features of the scheme remained unchanged.
The SLS essentially allows banks to get government bills in exchange for their harder-to-shift assets alongside a substantial "haircut" or discount to cover the risk of the lower-quality collateral.
The BoE had envisaged the original take-up of the scheme could be around £50 billion but had stressed there was no upper limit.
The central bank has also delayed its planned consultation on proposals for permanent reform to its money markets operations which had been due this week but would now published at "a later date."
The Bank Special Liquidity Scheme was launched on April 21 in order to help unblock jammed up money markets as banks were running scared of lending to each other, so fearful were they of each other's exposure to plunging U.S. real estate prices and other high-risk debt.
It was set to close to new lending in the week of October 20, though existing debts could be rolled over for up to 3 years. It will now remain open until January 30, 2009, the central bank said in statement on Wednesday, to give "additional time for banks to plan their access to the Scheme in an orderly fashion."
Certain banks such as Bradford & Bingley would probably collapse were it not for the scheme, so it's extension buys more time for the deal makers.
"It's a sensible move given the complete and total dislocation in money markets that we are seeing at the moment," said Michael Saunders, economist at Citigroup.
Bank Governor Mervyn King had said just last week that the SLS would close as planned but the situation has changed dramatically since with interbank markets freezing up once again a year after the global credit crunch first took hold.
The catalyst this week was the collapse of U.S. investment bank Lehman Brothers and its rival Merrill Lynch being sold. On Tuesday, the U.S. government had to rescue insurer AIG with an $85 billion loan.
As global stock markets tanked and interbank lending rates shot up by nearly two full percentage points in a day, shares in HBOS lost more than a third of their value and the company is now in merger talks with domestic rival Lloyds TSB, amid speculation the government brokered the deal.
King met both Prime Minister Gordon Brown and Chancellor Alistair Darling on Tuesday. The Bank said it had extended the drawdown period "in view of the current disorderly market conditions" and that all other features of the scheme remained unchanged.
The SLS essentially allows banks to get government bills in exchange for their harder-to-shift assets alongside a substantial "haircut" or discount to cover the risk of the lower-quality collateral.
The BoE had envisaged the original take-up of the scheme could be around £50 billion but had stressed there was no upper limit.
The central bank has also delayed its planned consultation on proposals for permanent reform to its money markets operations which had been due this week but would now published at "a later date."
Wed, 17th Sep 2008