LONDON, April 21 (UPI) -- The Bank of England, looking to shore up the country's banks, announced a $100 billion exchange of government bonds for mortgage-backed securities Monday.
Bank of England Gov. Mervyn King, said in a statement, the "Special Liquidity Scheme ... is designed to improve the liquidity position of the banking system and raise confidence in financial markets."
The trades are good for one year and renewable for up to three but the move is calculated so that "risk of losses on the loans ... remains with the banks," King said.
Chancellor of the Exchequer Alistair Darling told BBC television the move to restore more liquidity in British banking was due to "an unprecedented shock to the system," The New York Times reported.
Economist Jonathan Loynes of Capital Economics in London told the Times the move was not "the silver bullet" and that "quite significant cuts in interest rates" would still be needed.
The Bank of England's benchmark rate is 5 percent but Loynes predicted it would be dropped to 3.5 percent within the year, the report said.
