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Bank Of England sitting on £287 billion of toxic assets

Last year the Bank of England introduced a special liquidity scheme which was designed to allow banks to exchange assets for liquidity in a move to unlock the credit markets. The scheme finished in January this year and it has been revealed that in total £185 billion was forwarded to the 32 banks in the scheme in exchange for assets with a face value of £287 billion. However, since January the value of these assets has fallen to around £242 billion although many believe the true value to be substantially lower.

The problem is that toxic assets are notoriously difficult to value and while the face value may have been £287 billion the value in the market would have been nowhere near this figure. The Bank of England is today calling on the 32 members of the scheme to introduce further assets to back up the substantial loans they have received and give the government "breathing space" between the value of assets and the outstanding loans.

The figure of £185 billion was very much towards the top end of analyst's expectations and perfectly illustrates the severe times in which we are living at the moment. Quite when these loans will be repaired, or the toxic assets liquidated, remains to be seen but this is a major gamble.

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