King hits panic button

London’s iconic black cabs remain the best in the world.
London’s iconic black cabs remain the best in the world. Contributed

THE Governor of the Bank of England and the Chancellor of the Exchequer last night announced measures designed to prevent a new credit crunch that would push Britain's economy deeper into recession.

The move was a clear sign that the Governor and the Treasury are alarmed by the prospects for the economy in the face of potential financial shocks from the eurozone.

Speaking at the annual Mansion House dinner in the City of London, the Governor, Sir Mervyn King, and George Osborne said the Bank and the Treasury were working on a liquidity operation - a "funding for lending" scheme - which would provide private banks with cheap funding in exchange for a commitment from lenders to provide cheap loans to ordinary businesses and households.

Sir Mervyn said he expected the scheme to be up and running "within a few weeks".

Last night, the Treasury said it hoped the measures would increase annual lending flows to the economy by about 5 per cent, or AU$124.27 billion.

The scheme would permit private British banks to pledge their existing, illiquid loans as collateral at the Bank of England in exchange for highly liquid UK government bonds, which they could then sell on. In return for this cheap financing, banks would be required to commit to using the proceeds to increase the volume of loans to businesses and households, and to make that lending cheaper than it otherwise would have been.

Sir Mervyn said the eurozone crisis had created a 'black cloud' over the financial sector and instilled 'extreme uncertainty', which was pushing up banks' funding costs and crushing lending to the real economy.

The operation would be similar to the AU$310.67 billion Special Liquidity Scheme, established in April 2008 during the financial crisis, in which the Bank of England (BofE) allowed lenders to swap mortgage-backed securities for UK sovereign bonds in order to ease the flow of lending to households.

The SLS was wound down this year, but the International Monetary Fund advised the BofE last month to re-establish something similar in order to boost the economy.

Sir Mervyn and Mr Osborne said another scheme intended to ease funding pressures on banks - the Extended Collateral Term Repo Facility - would activate shortly.

Sir Mervyn said the BofE would start auctioning six-month sterling loans to help UK banks to weather any shocks emanating from Europe.

The Chancellor said the new measures showed the Government and the BofE were not standing idly by waiting for the eurozone crisis to hit Britain.

"We are not powerless in the face of the eurozone debt storm," he told financiers and dignitaries at the Mansion House.

"Together we can deploy new firepower to defend our economy from the crisis on our doorstep. We are rolling up our sleeves and doing everything possible to protect British families and firms."

Mr Osborne confirmed that the new Financial Policy Committee - the 'super-regulator' based at the BofE - would be given a mandate to support growth as well as ensuring financial stability.

Some City figures have complained that new capital requirements being imposed on banks by the Government and regulators are choking off lending to the real economy.

The Chancellor said he supported a eurozone banking union as a means of calming financial markets over the future of the single currency, but reiterated his pledge that Britain would not allow the UK to be bound by it.

Topics:  contagion economy eurozone

Don't close the gates on our history

NOT HAPPY: The Gillespie clan want to see the original Glengallan Homestead gates returned to the historical site. Pictured: Barbara Gaden, Susan Gaden, Adam Bayes, Sarah Bayes, Julia Gilroy, Jill Wrathcall, Peter Ryall, Jenny McMurray and Bob Gaden.

Calls are being made to return the Glengallan Homestead gates.

The case of the wandering Shetland Pony

The Warwick Pound.

Now, she wants to know, is it yours?

Massive closing down sale at RM Williams Warwick

Today is the last day RM Williams will be open in Warwick.

Local Partners

Australia Day Award nominations now open

ALL those who know someone who has made an outstanding contribution to the Warwick community is encouraged to nominate them for an Australia Day Award.

Former Split Enz front man Tim Finn finds new niche

Singer Tim Finn has written the music for theatre production Ladies in Black.

Musician finds his way to theatre

Former Warwick State High student is second

Victorian rider and former Warwick High student Lee Kimber (right) goes for his beast at the Warwick Rodeo.

Former Warwick High student to compete in national finals

13 things to do on the Southern Downs this weekend

Darcy Meek (left) is the early leader in parkrun on Saturday before being first man home.

Photo Gerard Walsh / Warwick Daily News

Here's a list of 13 things to do this weekend.

Azealia Banks won't take legal action against Russell Crowe

Rapper Azealia Banks

Rapper drops legal action against Russell Crowe

Brad Pitt meets with his kids amid divorce proceedings

Actor Brad Pitt

Brad Pitt has met up with his oldest son Maddox

Pictures of Taylor Swift allegedly being groped are sealed

They could "complicate jury selection".

Bruce Springsteen finds therapy useful

Singer Bruce Springsteen

Singer encourages others to seek help

Kerry Washington wants one more child

Kerry Washington recently gave birth to her second child

Kerry has only just become a new mum again

TRAVEL: Musicals light up Sydney

David Campbell performs in Dream Lover.

We take a trip through one of Sydney's finer scenes

Hit songwriter's Noosa mansion on market

SPECIAL PLACE: The Cintamani estate is going to tender, marketed by Tom Offermann Real Estate.

Is this Queensland's best property?

Kiwi siblings snap up Dotcom mansion for $32.5m

The new toy company owners of the Coatesville mansion want replace any controversy with positivity and fun. Photo / Barfoot and Thompson

The trio paid $32.5 million for the property in June

New $200 million development will create 580 jobs

Cassie And Josh with baby Alfie and daughter Andee. They have bought at new Lennox Head development Epiq.

Majority of new positions will be given to Northern Rivers locals

Cherrabah's mega resort plans axed

PLANS for a massive development at Cherrabah have been scrapped.

What our mayor thinks of the new draft SEQPlan

The plan to use the innovative technology as part of the new Maroochydore CBD was cemented on site today when Mayor Mark Jamieson and Envac Asia Region president Chun Yong Ha formally signed the contract for the $20 million underground waste collection system.

New plan accommodates Sunshine Coast Council's vision for growth.

Dusit Thani finance crisis 'just a small hiccup'

ON TRACK: Springfield Land Chairman, Maha Sinnathamby, Ipswich Mayor Paul Pisasale, Developer Richard Turner and Springfield Land Deputy Chairman, Bob Sharpless, at the recent resort sod turning ceremony.

Property developer says project remains firmly on track