London (shakespearefinance) April 27, 2008: In order to allow the banks to swap their risky mortgage-backed assets with government bonds, the Bank of England has unveiled plans to provide £50 bn to the financial system. Since the last year's credit crunch, banks have faced a crisis of low market confidence in bonds secured on mortgages. It is because of the increasing defaults among the high-risk 'sub-prime' borrowers in the US.

The Bank of England sources said, 'The scheme aims to improve the liquidity position of the banking system and increase confidence in financial markets.' As the credit crunch has hit the banks' ability to rake up funds, they are now hesitant over lending to each other. This in turn has led to harder mortgage deals for homeowners. The banks' balance sheets in most of the important financial centers are under pressure from these assets, sources in the Bank have elaborated.

'Financial markets are not working normally, which if left unchecked will have an impact on the wider economy. Across the world, there is a lack of confidence in assets created from packages of bank loans, most notably mortgage-backed securities,' the Bank sources revealed.

Libor rate, the rate at which banks provide credit to each other for a period of three months, has touched almost 6%, which is nearly 1% more than the official interest rates. This has prompted the Bank to take this measure to ensure that the mortgage-backed securities come to normal.