The central bank said, on Monday, that it was offering to swap gilt-edged government securities for a range of high quality bank assets, including mortgages.The asset swaps will be for one year and may be renewed for a total of three years, helping the banks , who are presently unable to shift the currently unattractive mortgage debt , with longer term assistance.

“The Bank of England’s Special Liquidity Scheme is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks,” BoE Governor Mervyn King said in a statement.

The scheme is being guaranteed by the British Treasury but has been designed to avoid the public sector taking on the risk of potential losses.

Bank balance sheets

Monday’s BoE move is aimed at freeing up bank balance sheets so that companies can lend more to consumers, who face declining house values, fewer mortgage options, and soaring oil and food prices. In return, the government is expecting banks to take more action to shore up their own balance sheets.

Meanwhile, Royal Bank of Scotland, Britain’s second largest bank, confirmed on Monday it was considering a share issue and others in the sector are expected to follow. People familiar with the matter told Reuters that RBS is seeking to raise over $20 billion.