Bank of England ignores liquidity pleas

The Intermediary Mortgage Lenders Association has warned that appeals to the Bank of England to restore liquidity are continuing to fall on deaf ears.

In an exclusive interview with Mortgage Strategy at the 20th annual IMLA dinner last week, Godfrey Blight, chairman of IMLA, said it’s vital that BoE governor Mervyn King restores investor confidence in mortgage-backed securities to improve liquidity.

He says: “I think King is on another planet – he needs to come back down to earth and address the problems with liquidity and mortgage availability. He has put this country back 20 years.”

Over the past month, IMLA has called for the government to address liquidity problems more than once to no avail.

King has confirmed that although the £50bn Special Liquidity Scheme will continue for the next three years, new assets will not be considered after its original closing date of October 21 this year.

Instead, next week the BoE plans to publish a consultation paper in favour of a permanent liquidity insurance facility.

In an address to the Treasury Select Committee, King says: “It is not the purpose of central bank liquidity insurance to provide a source of long-term funding to the financial system – indeed, it cannot do that. Only private savers or taxpayers via the government can provide such funds.”

Tony Ward, managing director of Home Funding, says relying on savers is not a sound solution to the crisis.

He says: “Retail deposits are not going to be the sole solution to liquidity problems. You can’t use short-term retail deposits to fund 25-year mortgages.”

Experts from across the industry say it’s unlikely that the BoE will echo the US Treasury’s intervention into beleaguered lenders Fannie Mae and Freddie Mac.

Last week saw the effective nationalisation of the two agencies when the Federal government committed to a $200bn capital injection, new credit lines plus a plan to buy their MBS.

King wishes BoE had been given power to trigger special resolution regime

Bank of England governor Mervyn King has admitted he would have preferred that the Bank had been granted the power to pull the trigger for the special resolution regime as well as the FSA.

Speaking at the Treasury select committee this morning King said that the Bank would be allowed to make recommendations to the FSA over when to trigger the regime for a failing bank, but it would not make the final decision.

He said: “I would have preferred if we had the power to pull the trigger. The Treasury decided that was not a power that we would be given. We lost the argument.”

King also said that any recommendations the Bank makes about triggering the regime and the FSA decides not to follow may not be made public unless the struggling bank actually enters the regime.

King added that it would be a mistake to rush through banking reforms and that there was a lot of detail still to be discussed. He also said he was in favour of some form of risk-based pre-funding for the depositor protection scheme. He said that over ten years the fund should be in its billions.

Also speaking in front of the Treasury committee later this morning, economic secretary to the Treasury Kitty Ussher MP said: “I think it is entirely right that the members of the Tripartite authorities should be able to communicate in private.

“I also think it is entirely right that it is the responsibility of the FSA to decide when the threshold conditions are met so that it triggers placing an institution into the special resolution regime when capital adequacy and other conditions are not met.”