Off the balance sheet: Bank's new £50bn scheme to ease credit crisis

The Bank of England will tomorrow publish its annual report and accounts, which will disclose that the £19.3bn of loans made to Northern Rock is still on its books. However, the Treasury said on Friday that the Northern Rock loans would be transferred shortly to the Government's own balance sheet.

The Bank's annual report for the year to March, which will be tabled in Parliament before its release to the public, is being published later than usual following a hectic few months that saw the setting-up of the Special Liquidity Scheme to ease the problems of the banking system. For now, the £50bn scheme is being treated in the accounts as an "off-balance" sheet item because the loans will be transferred to the Treasury, which is financing them with new gilts.

The scheme was put together in April by the Bank's Governor, Mervyn King, and Paul Tucker, the head of the markets division, to get the banks to start lending to each other by providing them with loans in return for collateral. Although there has been some increase in lending, many of the high-street banks are still lobbying the Bank of England to put more funds in the scheme, arguing that it has not gone far enough to restore confidence. Libor, the main lending rate between banks, has stayed stubbornly high, which is still putting banks off borrowing.

In return for new loans, the Bank accepts triple-A rated securitised bonds guaranteed by mortgages and credit card debt. One of the possibilities being discussed is whether the Bank would accept the extension of the scheme to include mortgages written this year; the cut-off point is currently December last year.

The Bank's accounts may also show that Northern Rock is repaying its Bank of England loan faster than projected in its restructuring plan. According to Simon Ward, chief economist at fund manager New Star, the Northern Rock loan was down to £24.1bn by 31 March and has been repaid mainly by mortgage redemptions.