Ministers mull new mortgage lending scheme
Banks under pressure as BoE's special lending scheme set to expire next month
The government is considering a series of options including state-backed schemes to help fund new mortgage lending, which would run alongside but be separate from the successor to the Bank of England's Special Liquidity Scheme (SLS). The Bank's new scheme, dubbed "son of SLS" in some quarters, will thus not be used to kick-start the housing market, as has been sometimes suggested.
The Treasury is thought to have accepted any successor to the SLS will be separate from other possible government-backed measures to revive the housing market. Any state-funded plan which may emerge from former HBOS chairman Sir James Crosby's review of the mortgage finance market will exist separately from the Bank's own machinery.
Sir James is expected to report to the Chancellor in the next few weeks. Last month, the Governor of the Bank of England, Mervyn King, made his scepticism apparent. "It would be a very dangerous move to a situation where the Government saw its major role as guaranteeing lending. Why should the taxpayer take on the risk of borrowing by individual borrowers?" Some in No 10 and many more in the housing industry are reportedly keen on just such a guarantee and a radical extension of the SLS. Mr King would appear to have won at least this skirmish.
However, the question of what, exactly, will replace the SLS is becoming acute. Launched in April as a "one-off operation with a finite life", the initial six month "window" will close in the week beginning 20 October. After that, only existing facilities can be rolled over, for a period of three years. In any case, the SLS was restricted to older mortgage-backed securities; anything originated after the end of 2007 cannot be used, a source of irritation for some of the Bank's political masters.
Bank share prices have come under pressure from uncertainty about the "withdrawal" of the scheme, and the supposed reliance of the banks on it. Halifax Bank of Scotland shares were down 5 per cent at one point yesterday. Morgan Stanley described these fears as "overdone".
Last week, hints from figures on the governing council of the European Central Bank about a tightening up of collateral for their liquidity support arrangements – including a withdrawal of eligibility for new mortgage-backed assets – also disquieted the markets, especially as some UK institutions are known to have used this "back door" for additional support. Collins Stewart said yesterday around £100bn of the UK banks' collective "funding gap" has been filled via the SLS. The building societies have also used the facility.
The SLS has been well used. Against an order of magnitude of £50bn indicated by the Bank at launch, analysts at UBS say some £200bn of mortgage-backed securities have been converted into gilts, a perhaps fanciful estimate. Other guesses, of £80bn to £100bn, backed by figures from the Bank for International Settlements Quarterly Report, seem nearer the mark.
However, the Bank itself has made clear that, when the SLS "window" is closed, some new machinery will be brought in. Whether that takes the form of a permanent "window" or a facility that can be used from time to time has not yet been made public. The Bank's review of its open market operations, the "Red Book", will be published within the next month, so its precise plans for a "son of SLS" will be made plain then, and before the existing window shuts.
In a speech in June Mr King said: "We intend to learn from the experience of the scheme to put in place a liquidity facility that works in all seasons – both 'normal' and 'stressed'. It will be part of a set of reforms to our Red Book... Any such facility will need to meet two challenges: it will need the right pricing structure and it will need to overcome the 'stigma' problem that has affected access to all central banks during the current crisis."
On 13 August, Mr King added: "The SLS was introduced as a measure to deal with a legacy problem of liquidity of the stock of assets which banks owned last year when the crisis hit. So that window will close in October. The longer-term issue of tightening of credit conditions is much wider. That is to do with the health of the capital position of the banking system, and it's very important not to confuse the two".
International Women's Day 2014: The shocking statistics that show why it is still so important
Feminist quotes to inspire you on the International Women's Day
Oscar Pistorius trial: Case turns into a bizarre safari following the tracks of a wounded lion
Belle Knox: How the porn star student from Duke University became bigger than Justin Bieber
Liam Neeson on death of wife Natasha Richardson: ‘When I hear the door opening, I still think I’m going to hear her’
Apple's Tim Cook: Business isn’t just about making profit
Thousands of young people forced to go without food after benefits wrongly stopped under 'draconian' new sanctions regime
Ukraine crisis: New navy chief 'defects' and surrenders Crimean HQ as Putin claims ultranationalists forced intervention
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
- 1 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 2 Academy members voted for Oscar-winning 12 Years A Slave 'without watching it'
- 3 Orgasm machine to deliver climax at the push of a button
- 4 Liam Neeson turned down James Bond role to marry Natasha Richardson
- 5 Livr: A social network only for drunk people
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...