The Bank of England is waiting for the government approval to take over mortgage loans that are sat on lenders' balance sheets, in order to increase liquidity in the money markets.
The Bank of England would grant government bonds in exchange for securities backed by UK mortgages. This move would be welcomed as it would address the reluctance among mortgage lenders to lend money in the wake of the liquidity crisis.
The prime minister has flown to the US today to meet Wall St bankers to discuss the global crisis further. He met the CEO of UK banks yesterday and confirmed that the government will remain in contact with the Bank of England to find a way to resolve the crisis.
The government has come under fierce criticism of the way the credit crunch has been handled and rightly so. It only now seems that they are sitting up and taking notice of the carnage. Thousands of jobs have already been lost in the financial services sector already and many more are likely to follow. This crisis seems to have been underestimated.
Lenders hope that further intervention from the Bank of England will help the inter bank rate (LIBOR), which is currently languishing unchanged at 5.93% which is a full percentage point higher than the Bank of England base rate. Until the LIBOR rate is reduced it is unlikely that the cost of mortgages will come down significantly.