Bank plans credit crunch measures

Governor Mervyn King is expected to announce plans shortly to accept a wider range of collateral for Bank of England loans, while also pumping more money into the markets.

The moves would help to ease some of the pressure currently faced by banks as they struggle to borrow money to lend on to consumers after the wholesale money markets effectively dried up.

Mr King has previously been reluctant to help the struggling banks as he is understood to think this would be a moral hazard, encouraging banks to pursue risky business models as they would not have to suffer the consequences.

But the other central banks have done more to help hard-pressed lenders since the credit crunch hit, with both the European Central Bank and the US Federal Reserve accepting mortgages as collateral against their loans.

The ECB and the Fed have both also made more funding available to banks than the Bank of England.

This has given banks with US or European parent companies greater access to funding, putting the likes of Abbey, which is owned by Spanish Bank Santander, at a significant advantage to its UK rivals that only have access to funding from the Bank of England.

Banking trade body the British Bankers' Association has been calling for the Bank of England to accept mortgages as collateral since the credit crunch first hit.

Speculation over the lifeline the Bank is planning follows a meeting between Mr King and the bosses of the UK's five biggest banks, Barclays, HSBC, HBOS, Lloyds TSB and Royal Bank of Scotland, on Thursday.

The details of the meeting have been kept secret, but it is understood that Mr King said he would consider allowing banks to use a greater range of assets to back loans from the Bank.