King pledges more cash to help banks' liquidity

The Governor of the Bank of England yesterday pledged to continue supporting liquidity-starved banks, but stopped short of promising to buy worthless mortgage-backed securities.

Mervyn King told the Treasury Select Committee that following last week's summit meeting with leading banks, he was in continuing talks with the sector over finding a "longer-term solution" to the credit crisis.

Mr King promised that the central bank would "provide the liquidity assistance that the system needs in order to restore confidence". However, while the Governor confirmed that in December, January and March the Bank had broadened the range of collateral it accepted on repurchase agreements to include certain residential mortgage-backed securities, he denied any plans to begin buying unwanted mortgage-backed securities.

Such a move would be hugely controversial, with critics claiming that it would amount to taxpayers bailing out the City. "We are taking some mortgage securities as collateral on repo agreements," he said. "That is very different from offering to buy all mortgage-backed securities."

Last week, the Bank again pumped billions of pounds into the money markets in addition to the weekly funds offered to commercial banks. However, the extra liquidity has failed to bring down the cost of borrowing, with the Libor rate at which banks lend to each other touching 6 per cent yesterday.

Mr King said the offer of funding assistance was only a temporary measure, adding "we are discussing with the banks how a longer-term resolution of the problem might be reached".

He warned it was too soon to say where the discussions would lead, but the Bank later refused to give any further details on the talks.

The financial crisis has moved into a new and different phase worldwide, Mr King added. "Across the world confidence in financial markets is fragile," he warned. "It stems from an 'overhang' on banks' balance sheets of assets in which markets have closed. These assets cannot now be sold or used to secure funding in the market – they are difficult to finance. That has created uncertainty about the strength of banks' financial positions."

In addition to fresh liquidity, MPs on the committee were also told that the further deterioration of the markets meant the chances of an interest rate cut next month had increased.

Mr King said that the weakening market conditions meant the Monetary Policy Committee, which sets the UK's interest rates, was more likely to consider a cut. Last week, the MPC minutes for March's meeting revealed that the Governor's deputy, Sir John Gieve, had voted to cut rates. The vote went eight to two to remain at 5.25 per cent.

Sterling fell against the euro yesterday in the wake of bearish sentiment on the short-term prospects for the currency from the central bank.

Charles Bean, the chief economist to the Bank of England, told the Treasury Select Committee that regarding the currency "the risks are balanced on the downside", sending the pound lower in the afternoon.

Andrew Sentance, another member of the MPC, added that he expected consumer spending to weaken in the next few months. However he called outright recession a "remote risk for the UK economy at present".

News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
peopleReports that Brand could stand for Mayor on an 'anti-politics' ticket
News
The clocks go forward an hour at 1am on Sunday 30 March
news
Arts and Entertainment
The Doctor finds himself in a forest version of London in Doctor Who episode 'In the Forest of the Night'
TVReview: Is the Doctor ever going stop frowning? Apparently not.
News
Voluminous silk drawers were worn by Queen Victoria
newsThe silk underwear is part of a growing trade in celebrity smalls
PROMOTED VIDEO
Sport
footballMatch report: Real fight back to ruin Argentinian's debut
News
Candidates with surnames that start with an A have an electoral advantage
newsVoters are biased towards names with letters near start of alphabet
Arts and Entertainment
Isis with Lord Grantham (Hugh Bonneville)
TV
Arts and Entertainment
Jay James
TVReview: Performances were stale and cheesier than a chunk of Blue Stilton left out for a month
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?