Bank 'planning £50bn bonds swap'

The BBC said the one-year bonds would be issued to fill the high street banks' gap in funding caused by the crisis in the mortgage-backed securities market in the wake of the sub-prime crash.

The Treasury said the £50 billion figure is "speculation" but added that Chancellor Alistair Darling and the Bank's governor Mervyn King are working to help the market return to normality.

Commenting on the reports, Labour's John McFall, chairman of the Commons Treasury select committee, backed the move but conceded it was a risk.

He said: "I think it's something that is necessary. If we don't have this what this will mean is that the whole mortgage market and perhaps the real economy will freeze up."

Everybody involved in the decision, he said, has "had to swallow some pride".

Banks' shareholders would have to "take some of the pain," he said, as reports suggest the Royal Bank of Scotland is planning a multibillion-pound rights issue to shore up its balance sheet.

The Bank of England, Mr McFall said, had changed its stance and the Government is "sticking their neck out by taking a political risk here - but I think it's worth it".

The BBC reported that the bonds would have a maturity of one-year - and therefore would not be counted as part of the national debt.

Mr McFall said he would not be surprised if the final financing plan was greater than £50 billion.