According to the Daily Telegraph Bank of England governor Mervyn King has been working on the scheme, which aims to increase liquidity in the market, for the past six weeks.
The scheme means the Bank of England will accept lower quality assets, such as 70 per cent loan to value, from banks in exchange for money. Currently it only accepts mortgages with loans of 50 per cent or less.
Liberal Democrats Shadow Chancellor Vince Cable is calling for urgent reassurances from the Government that taxpayers will not carry banks’ losses.
He says: “It is obviously necessary for urgent action to be taken to unblock the mortgage market and to break the crippling effects of the credit crunch. However, we cannot have a situation where the banks are able to privatise their profits and nationalise their losses. Since the mortgages from the banks are of inferior quality and higher risk than the Government bonds which they are replacing, the implication must be that taxpayers are shouldering the risks and losses of the banks. This cannot be right.
“In return for bailing out the banks, the Government must now insist on a orderly programme for identifying the losses in the banking system to ensure the banks themselves cover those losses by stopping dividend payments and raising money from their shareholders. The cost of Northern Rock is quite enough without the Government taking on all the other risks and losses of the banking sector.”