The Bank of England said City regulators should tell banks they can tap into large amounts of cash held on their balance sheets if needed in the face of the worsening eurozone crisis.
The Bank hopes the move will mean a substantial amount of cash being offered to lenders, with estimated total liquidity held across Britain’s banking system about £500 billion.
Bank of England Governor Sir Mervyn King said: “Our challenge remains making sure the banks are in the best possible shape to weather the storms they are facing, and those that lie ahead, so they can support lending to the real economy.”
He added: “Banks have built up significant assets in recent years. They are in a strong position to withstand a period of market stress. “But it’s very important that they are willing to use them in times of stress to support lending to the real economy.”
It is the latest part of the Bank’s strategy to help Britain’s economy recover from its double-dip recession, following the announcement earlier this month of a £100bn-plus scheme to boost bank lending.