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Government package to reinforce stability of financial system

Extending the drawdown window for new debt under the Government’s Credit Guarantee Scheme (CGS) which is designed to reduce the risks on lending between banks; 
Establishing a new facility for asset-backed securities;
Extending the maturity date for the Bank of England’s Discount Window Facility which provides liquidity to the banking sector by allowing them to swap less liquid assets;
Establishing a new Bank of England facility for purchasing high-quality assets;
Offering capital and asset protection scheme for banks, with proposals for this to be co-ordinated internationally;
Clarifying the regulatory approach to capital requirements, through an announcement by the Financial Services Authority (FSA).

The Government intends to negotiate with the banks participating in certain facilities lending responsibility agreements that will have specific and quantified lending commitments and that will be binding and externally audited.

The likely impact of today’s announcements on the public finances will be mostly temporary, as investments will be held for no longer than is necessary to ensure stability and protect taxpayer interests; liabilities will be backed by assets; and fees will be charged for relevant schemes.

The Government will now also consider further ways of addressing the loss of mortgage lending capacity in markets.

As a first step, the Government confirmed that Northern Rock was no longer actively pursuing a policy of rapidly reducing its existing mortgage book.

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