The Bank of England has announced a scheme to inject £50 billion ($100bn) into British banks as a means of easing the liquidity drought and stimulating mortgage lending.

In theory the package is unlimited since the banks are thought to need to raise £750 billion (($1.5tr) this year, but £50 billion is the estimate in the short term. This is billed as the biggest ever such package anywhere in the world.

The Bank will exchange its 9-month Treasury Bills, which are as good as cash, for the tainted debt obligations that many banks now hold. It will do so at around a 70/100 swap, what the markets call a “haircut”.

The haircut itself is variable according to movements in the markets, so taxpayers will be well insulated from large losses through defaults.

Instead of the normal auctions of Government Bonds on specific dates, this money will be available at any time, and will be confidential.

The only way outside observers will know if the scheme is working is by watching the LIBOR rate, which represents the rate at which banks will lend to each other in the money markets.

If it goes down from its present 5.9pc or so, the scheme will be having an effect on liquidity. If it goes up, which is unlikely, it’s back to the drawing board for the Bank and the Treasury.