Bank of England extends special liquidity scheme until January 2009

The Bank of England has announced its decision to extend its special liquidity scheme until 30 January 2009.

The scheme was launched in April and was to run for six months until 21 October. Initially, the Bank and Treasury said that they expected the scheme to involve at least £50 billion in funding.

However, amid the financial chaos of the last few days, the Bank of England’s Governor, Mervyn King, confirmed the decision today to allow the scheme to run for a further few months.

The scheme has become a lifeline to UK mortgage lenders by providing regular injections of cash and allowing them to swap mortgage-backed securities for Treasury bills.

Since the credit crunch took hold last August, the mortgage market has virtually dried up.

The Bank’s dramatic decision follows the financial turmoil in the money markets this week and the Bank described the extension as ‘providing additional time for banks to plan their access to the scheme in an orderly fashion‘.

Both sides of the Atlantic have suffered this week after the collapse of Wall Street giant, Lehman Brothers and Merrill Lynch bought by Bank of America. Furthermore, US insurance giant AIG was bailed out by the US Federal Reserve and more recently, merger talks are taking place between HBOS and Lloyds TSB.

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