The Bank of England will ease its lending criteria for short-term loans in order to help banks during the liquidity crisis.
Having received much criticism for failing to act, the bank’s governor Mervyn King has accepted the central bank will need to take bigger risks to prevent the financial system from collapsing.
Commercial banks hoping to borrow money from the Bank of England for one week will now be able to secure the debt against riskier assets than were previously accepted.
Reports suggest the Bank of England will not take on so-called ‘toxic’ debts, but will accept a wider range of securities.
The move means institutions taking on short loans of just a week will now be able to swap the same assets as those looking to borrow for longer periods.
King has been criticised for operating a relatively strict liquidity regime compared with other central banks such as the Federal Reserve and European Central Bank.
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