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".

PROMOTED VIDEO
Life and Style
fashion
Arts and Entertainment
Harrison Ford attends Blade Runner at Target Presents AFI's Night at the Movies at ArcLight Cinemas on 24 April, 2013 in Hollywood, California
film... but Ridley Scott won't direct
Sport
Hughes is hit by a bouncer from Sean Abbott
cricketStephen Brenkley on batsman's tragic flaw that led to critical injury
Sport
Dejected England players applaud the fans following their team's 3-0 defeat
football

News
people

Actress isn't a fan of Ed Miliband

Life and Style
Stefan Gates with some mince flies
food + drink
Arts and Entertainment
Rooney Mara plays a white Tiger Lily in forthcoming film Pan
filmFirst look at Rooney Mara in Pan
News
ebooksNow available in paperback
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

h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

£35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

Citifocus Ltd: Operational Risk Analyst

£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

h2 Recruit Ltd: Business Development - Telecommunications - £50,000 OTE

£25000 per annum + £50,000 OTE: h2 Recruit Ltd: London, Reading , Southend, Al...

Day In a Page

Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
10 best stocking fillers for foodies

Festive treats: 10 best stocking fillers for foodies

From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
Phil Hughes head injury: He had one weakness – it has come back to haunt him

Phil Hughes had one weakness – it has come back to haunt him

Prolific opener had world at his feet until Harmison and Flintoff bounced him
'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

'I am a paedophile'

Is our approach to sex offenders helping to create more victims?
How bad do you have to be to lose a Home Office contract?

How bad do you have to be to lose a Home Office contract?

Serco given Yarl’s Wood immigration contract despite ‘vast failings’
Green Party on the march in Bristol: From a lost deposit to victory

From a lost deposit to victory

Green Party on the march in Bristol
Putting the grot right into Santa's grotto

Winter blunderlands

Putting the grot into grotto
'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

'It just came to us, why not do it naked?'

London's first nude free runner captured in breathtaking images across capital