A rescue package worth at least 50 billion pounds ($100 billion) was unveiled by The Bank of England recently in one of the biggest moves by a central bank in the world in the current credit crisis. The large amount of funds will be derived by an asset swap, increasing capital that can ease the mortgage market.

In a time when most mortgage lenders are tightening their lending regulations (due primarily to the US subprime mortgage mess), Bank of England is securing government bonds to restart the lending process banks have with themselves, hoping that lending restrictions can be eased somewhat. The Bank of England has the ability to exchange the risky mortgage debts for more secure government bonds to the banks they do business with. The more people that know this is there, ultimately freeing up more money to lend, the more likely England could see some resurgence in the housing sector. And with the addition of the new windows bank loans, England can now apply online.

The Bank of England will offer the swaps for a period of one year, and renewals for up to three years. There are a few restrictions on the swaps and some punitive terms that could reduce some of the demand. Only assets existing at the end of 2007 can be used. If the demand ends up being higher than the 50 billion pounds promised, however, there are provisions to go even higher. Bank of England Governor Mervyn King hopes this will help ease the significant slowdown in house prices he has been seeing across Britain. Restarting lending between banks will push much more liquidity into the system and hopefully cause some of the lending restrictions to be eased. The banks must maintain responsibility for any losses from the loans to Bank of England and will give them assets of greater value than the Treasury bills received as collateral, but the ultimate goal of reinvigorating the market might just be the shot in the arm the economy needs.