On October 8, the UK Government announced that it is introducing additional measures to ensure the stability of the UK financial system and to protect savers, depositors, businesses and borrowers.
The proposals are intended to: provide sufficient liquidity in the short term, make available new capital to UK banks and building societies, and ensure that the UK banking system has the funds necessary to maintain lending in the medium term.
The Bank of England will extend its facilities to provide short-term liquidity and the Government has announced that at least £200 ($347) billion will be made available to banks under a Special Liquidity Scheme. The Bank of England will continue to conduct auctions to lend sterling for three months, and also U.S. dollars for one week, against extended collateral. Bank debt that is guaranteed under the Government's guarantee scheme will be eligible in all of the Bank of England's extended-collateral operations.
The Government is also establishing a facility which will make available capital in appropriate form (expected to be preference shares or Permanent Interest Bearing Shares) to “eligible institutions”. Eligible institutions are UK incorporated banks (including UK subsidiaries of foreign institutions) which have a substantial business in the UK and building societies.
The Government has also announced that it will make available to eligible institutions for an interim period a Government guarantee of new short and medium term debt issues to assist in refinancing maturing, wholesale funding obligations as they fall due. The Government expects the take-up of the guarantee to be in the region of £250 ($434) billion.