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Banks in line for £40bn bail-out - paid for by the taxpayer
Last updated at 00:37am on 18.04.08
Rescue: The Bank England has been asked to take mortgages off banks' books
A deal to lend financial institutions up to £40billion could be in place as early as next week.
Any taxpayer-funded rescue would be hugely controversial and seen as a "reward for failure".
Despite the credit crunch turmoil, banking bosses have been able to rack up millions of pounds in bonuses.
Vince Cable, the LibDem Treasury spokesman, said: "We cannot have a situation where the banks are able to privatise their profits and nationalise their losses.
"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.
"This looks like rewards for failure and irresponsibility."
Leading City of London bankers have asked the Treasury and the Bank of England to take mortgages off their books.
Attack: Lib Dem Treasury spokesman Vince Cable has branded the rescue plan 'a reward for failure'
They say this will ease the flow of money through financial markets and prevent further casualties in the banking sector.
Sources said the deal could involve handing commercial banks government bonds, which are the safest form of debt.
In return the banks would be able to offload their mortgagebased investments on to the Government. The proposed asset "swap" could last as long as two years.
The Federal Reserve has implemented a similar scheme in the U.S. Mortgage assets have become tainted by the American subprime fiasco, triggering a collapse in confidence in the banking system.
A Government source said: "Clearly there is a need for extra liquidity in the system, therefore the work we are taking forward with the Bank of England is a high priority."
A City source said an asset swap would be a bold move.
He added: "It is not every day of the week that the Government thinks about something of this scale."
If the Government does step in, there will be calls for struggling borrowers to be treated more generously.
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