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Foreign Investment: Bank of England solves the UK banking crisis?

Posted April 24, 2008

“Mr. King has attached enough conditions to these loans to make the risk to the taxpayer much smaller than it might have been. He’s also helped to make life easier for banks with genuine liquidity problems. Problems with actual solvency are quite another matter however.” — John Stepek

by John Stepek

Baltimore – (TFN): Well, as I suspected, it doesn’t look like the Bank of England’s £50bn injection is going to bring down mortgage rates any time soon.

Mervyn King (the Bank of England’s governor) has been broadly applauded for the way he’s put this package together. Fifty billion pounds – a number that can rise, depending on demand – of short-term government bonds will be available to banks in exchange for high-quality mortgage debt.

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But the banks will take a large ‘haircut,’ in other words, they’ll have to pay the price. This will range from 1% to 35% of the asset’s value.

So it seems that Mr. King has attached enough conditions to these loans to make the risk to the taxpayer much smaller than it might have been. He’s also helped to make life easier for banks with genuine liquidity problems.

Problems with actual solvency are quite another matter however… Read on to learn more.

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Posted by John Stepek · Filed Under International Investing 

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