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04 December 2023

Central banks in mortgage crisis talks

By Agencies


Central banks on both sides of the Atlantic are in talks about the feasibility of mass purchases of mortgage-backed securities in a bid to solve the global credit crisis, the Financial Times said on Saturday.

The newspaper, without citing sources, said the talks were at an early stage and part of a broader exchange on how to battle the turmoil in financial markets, which has continued despite the injection by central banks of billions of dollars of liquidity and cuts in interest rates.

The Bank of England appears to be most enthusiastic to explore the idea, which would involve the use of public money to shore up the market in a key financial instrument, the FT said.

The Federal Reserve is open to the idea in principle, but only as a last resort, while the European Central Bank is less keen, it said.

Central banks have so far been prepared to lend against mortgage-backed securities rather than buying them outright.

The securities have plunged in value amid a credit squeeze which was sparked by low quality mortgages in the United States, leading to a vicious circle of forced sales, falling prices and weakening balance sheets for banks.

None of the central banks could immediately be reached for comment. Britain's finance ministry declined to comment. (Reuters)