The Brown government has so far this year handed over more than £200bn to cash-strapped banks, it was claimed by a leading Swiss banker yesterday.
UK banks have been queueing up to swap dodgy mortgage debt for Treasury bonds.
Bank of England Governor Mervyn King originally anticipated that the Special Liquidity Scheme (SLS) announced in April may be used for £50bn of ‘swaps’.
But an analyst at Swiss banking giant UBS has claimed that UK banks have swapped as much as £200bn of debt for bonds.
Alastair Ryan said he hascalculated that ‘the take-up could be £200bn or more’.
And a Bank of England spokesman has confirmed ‘as has always been the case, there is no cap on the scheme. Its size will reflect its use.’
The banks packaged up the biggest amount of mortgage debt in history in the three months to the end of June in their bid to access the Bank of England’s Special Liquidity Scheme, according to figures from the Bank for International Settlements (BIS).
The BIS said that the amount of mortgage-backed bonds issued rose from $8bn in the first quarter of 2008 to $90bn (around £45bn at the time) in the second quarter.
The BIS Quarterly Review stated: ‘Most of the UK issuance followed the Bank of England’s announcement in April 2008 of a Special Liquidity Scheme (SLS) that enables UK banks to swap illiquid assets such as mortgage-backed securities against UK Treasury bills.’
The Bank of England (BofE) has said that it will not reveal the extent to which banks are using the Special Liquidity Scheme until it has closed in October.
In separate news, Virgin Atlantic boss Richard Branson has let it be known he is ready to put up £2bn in a bid to buy Gatwick airport in the wake of the Competition Commission’s recommendation that BAA be broken up.
Branson, who has already had talks with potential takeover partners, said: ‘We are open to being courted by anyone who is interested in bidding.’
l China has been investing heavily in the UK.
The China Development bank has a £891m or 3.1% stake in Barclays, while the country’s central bank, the People’s Bank of China, has invested £136m, a one per cent stake, in Prudential, a £48m or 0.8% stake in Legal and General.
The People’s Bank of China owns 0.7 % of the Drax coal-fired power station and has a £188m or 0.4% stake in the BG Group.