UK poised to boost banks" liquidity The UK chancellor and Bank of England are poised to announce a new strategy to ease credit conditions in the British economy and offer more liquidity to the banking system, perhaps as early as the annual Mansion House dinner on Thursday. The change of heart from the BoE was signalled on Tuesday evening by Paul Tucker, deputy governor for financial stability and a leading candidate to become the head of the central bank next year. Mr Tucker distanced himself from the BoE's previous hardline stance. He said: "The authorities, including the BoE, need to consider what more we could do to alleviate tight credit conditions in the UK." Four separate insiders from the UK's tripartite financial supervision authorities - the Treasury, BoE and Financial Services Authority - suggested to the Financial Times that a shift was under way. The evolution of policy results from borrowing costs rising for households and companies even as the BoE has interest rates close to zero. Interest rates on government debt are at an all-time low and the BoE has pumped £325bn of new money into the economy since 2009. Kevin Daly, an economist at Goldman Sachs, who has been calling for action to cut borrowing costs, said: "It is sensible to address the issue directly. Conventional quantitative easing has been ineffective in cutting interest rates faced by households and business. One obstacle to that has been the entrenched position of the BoE, which the Treasury now believes to have softened. Sir Mervyn King, the governor, had long said that any action directly to reduce banks" funding costs, or cut the borrowing costs of companies or households, represented subsidies and were something for government, not the central bank. He had also insisted that if banks needed more liquidity outside times of extreme crisis, that should come with penalty interest rates. Mr Tucker's speech on Tuesday appeared to find ways to work around both objections. He talked of the authorities working together on credit conditions, implying indemnities for the central bank if it were to act in tandem with government. Sir Mervyn's second objection was addressed by saying central banks should provide additional liquidity "without strings attached" outside extreme times "when the source of stress is beyond banks" control." Tripartite insiders were tight-lipped on the exact policy tools being discussed by the authorities but they are likely to include the Financial Policy Committee of the BoE seeking to relax regulations on liquidity, which Mr Tucker said might be hampering banks" incentives to lend. There has been a nearly year-long argument within the FPC over the merits of tight liquidity regulations at a time of economic weakness. Andrew Haldane, BofE director of financial stability, recommended such action in August. Lord Turner, chairman of the Financial Services Authority and another leading candidate to become BoE governor, has asked whether the UK's new macroprudential regulator should have a role in boosting the economy as well as curbing bubbles. Politicians and industry groups welcomed Mr Tucker's speech and suggested that there were ways to ease the burden of the liquidity rules and make it easier for banks to use assets to lend. Not before time. I've been pressing for something to be done on liquidity for more than a year now," said Andrew Tyrie, chairman of the Treasury committee. While the banks aren't functioning properly, the British economy cannot fully recover. Michael Lever, a managing director at the Association for Financial Markets in Europe, said if regulatory requirements were responsive to changes in economic factors, it would "ensure that the right balance is struck between ensuring a stable financial system and enabling banks to support economic growth." Bankers said one practical step could be to allow banks to hold a larger range of assets in their liquidity buffers, such as securitisations, rather than limiting them to mostly safe sovereign debt and cash. "Not only would this free up banks" balance sheets for lending to business when demand recovers but also it would bring buyers of securitisations back into the market," said Simon Hills, the British Bankers" Association executive director for prudential capital.