Brown seeks views of bank chiefs on solving credit squeeze crisis

BRITISH PRIME minister Gordon Brown met the chief executives of Barclays, HBOS, HSBC and Royal Bank of Scotland, as well as leading investment bankers from the City of London at Downing Street yesterday. The talks focused on possible solutions to the credit squeeze that has led to a sharp rise in financial instability.

A Downing Street spokesperson said the prime minister welcomed the opportunity to canvas views from "a wide range of financial institutions and City representatives" on "the current situation in the financial markets and the next steps that all need to take".

Further "discussions" over the coming days were flagged, including a meeting between the Council of Mortgage Lenders and Alistair Darling next week. The chancellor will press the lenders to find ways to pass on recent cuts in interest rates to borrowers.

The meeting came as the outlook for UK house prices slumped to the lowest level since the 1970s, according to an influential survey of estate agents showing market conditions have softened in the past month.

It also coincided with the latest injection of liquidity into the money market by the Bank of England. The bank issued £15 billion of repurchase agreements into the financial system, bringing the total injected in recent months to £50 billion. The latest injection of cash into the money market by the bank occurred amid fresh evidence that the banks are still refusing to lend to each other. The latest reading of the three-month Libor rate was unchanged at 5.93 per cent, well above the bank's main lending rate of 5 per cent.

The talks at Downing Street are the latest in a series of meetings involving politicians, regulators and bankers to explore solutions to the crisis. Last month Mervyn King, the governor of the Bank of England, hosted a meeting with executives to discuss ways in which the central bank could intervene to improve the functioning of the markets.

Central to the talks are moves to revive demand for securities backed by mortgages and efforts to reduce inter-bank lending rates, which have remained high in spite of the Bank of England's decision to cut rates again last week.

In a statement following the meeting, Downing Street said it had been discussing further proposals with the Bank of England "to support the financial system and help the functioning of the money markets, and in particular to help those segments of the market which have been most affected".

Bank executives want the Bank of England to follow other central banks, such as the US Federal Reserve, in accepting mortgage-backed securities as collateral in exchange for government-backed bonds. More radical options, such as the Bank of England buying mortgage-backed securities outright, have also been discussed. - ( Financial Times service )