Darling braced for off-balance sheet row in mortgage deal

The chancellor is set to come under fire over whether he will count the £50bn
of bonds – offered to lenders in exchange for assets – as government debt.

Alistair Darling is expected to tell MPs today that the Bank of England will
allow
banks
to make the swap in an attempt to restore confidence and ease the effects of the
credit crunch in the plunging house market.

Darling was criticised for keeping Northern Rock’s debt off the government’s
books, preventing the breaking of a key fiscal rule requiring debt to be no more
than 40% of GDP.

It is thought that the Treasury is prepared to double its aid to banks from
£50bn to £100bn, the
Times
reported.

Despite the cash injection, there is no guarantee that this will in turn
persuade banks to offer cheaper mortgage deals.

British banks have not fully disclosed their individual losses and instead
are holding onto their cash reserves to protect their positions.

Darling said he expected banks to ‘begin now to disclose the extent of their
losses and explain how they are going to rebuild their capital’.

‘We believe that this will be an essential step in trying to get the
financial market stabilised. That in turn will help the mortgage market too,’
Darling said.

Further reading:

Watchdog urged to probe off-balance sheet

Darling fudges PFI rules to hide assets

Darling in hot water over Rock treatment