26 Mar, 2008
governor of the Bank of England has pledged extra liquidity to the
money markets in a bid to restore confidence.
Mervyn King made the
pledge to MPs of the Treasury Select Committee this morning, as he
discussed the central bank's inflation report.
He says: "I want to
assure you that the bank will provide the liquidity assistance that
the system needs in order to restore confidence. Such lending can
be only a temporary measure but it can be a useful bridge to a
The Bank of England
has extended the range of eligible collateral on its three-month
loans in December, January and this month to include
King confirmed that
the January auction will be rolled over on April 15, with the size
of the auction to be decided in the light of market conditions at
King says: "It is
unrealistic to assume that markets for many asset-backed securities
are likely to re-open speedily or, when they do, to their previous
levels of activity."
He warns that the
financial crisis has moved into a new phase.
King says the heart
of the problem stems from an overhang on banks' balance sheets of
assets in which markets have closed.
He adds: "These
assets cannot now be sold or used to secure funding in the market -
they are difficult to finance. That has created uncertainty about
the strength of banks' financial positions."