In the light of Northern Rock’s move to get emergency funding from the Bank of England, the Council of Mortgage lenders has emphasised that the issue facing lenders is one of liquidity and funding, not lending quality.
The FSA has said that Northern Rock is “solvent, exceeds its regulatory capital requirement, and has a good quality loan book.”
The CML says that Northern Rock’s savers and borrowers can therefore have confidence that the loan arrangements with the Bank of England do not reflect any underlying business problems, but are a reflection of a general lack of confidence in the financial markets, which is making it more difficult for all lenders to raise funds from the markets.
CML director general Michael Coogan says: “Consumers need to understand that the problem for lenders generally at the moment is in raising funds, not in lending quality. The Bank of England would not have provided the loan to Northern Rock if it had concerns about the quality of the lender’s own business.
“All lenders are facing funding pressure at the moment, and what they need is a return to more normal market conditions as quickly as possible. We welcome the Bank’s intervention and confirmation that it is keeping a close eye on the situation.”
In a statement released this morning the FSA says: “The decision to provide a liquidity support facility to Northern Rock reflects the difficulties that it has had in accessing longer term funding and the mortgage securitisation market, on which Northern Rock is particularly reliant.
“In its role as lender of last resort, the Bank of England stands ready to make available facilities in comparable circumstances, where institutions face short-term liquidity difficulties.”