Brief
summary of the details of
the Bank of England £50bn
'scheme' as far as we understand
it (from ft.com, the only
source we could find at the
time of researching this):
1)
A fee is charged based on
the difference between 3 month
Libor rate and the interest
on 3 month government paper:
Currently that is 1%, but
it could reduce if the Libor
rate reduces (which is what
the BofE wants)
2)
Haircut: Banks don't get £1
for ever £1 of mortgaged
backed securities. According
to the FT, banks will get
between 12% and 22% less,
which is quite a hefty discount
to the value of the assets
being offered.
3)
The BofE will value securities
at 'observed market values'
these are depressed at the
moment.
So,
based on this, the scheme
is hardly a bailout. In fact
any bank who does take the
BofE up on this could very
well be desperate. The list
of institutions who do take
this up will be interesting.
We'll keep a look out for
it.
