BoE sets out plan to restore confidence in 'toxic' loans

"Securitisation can support greater funding diversification, free up capital to allow banks to extend new credit to the real economy, and provide non-bank investors, such as insurance companies and pension funds, with access to a broader pool of assets," the Bank said on Friday.

The proposals in Friday's report aim to reduce the risk of securitised debt by limiting its tendency to concentrate risk in institutions vital to the financial system, as well as to make their performance more predictable.

The banks said they would ensure the market was "robust" by distributing risk and ensuring assets were only "backed by real economy loans", rather than other debt bundles.

The Bank of England said safe securitisation would enhance competition. "Lending to businesses is highly concentrated, with the four largest banks holding an SME banking market share of around 80pc. Had the market been more diverse, other lenders may have been able to fill the void left by the large banks when they decreased their lending," it said.

Last month the two central banks said public intervention to kick-start the market. They accused global regulators of taking too tough a stance on the sector.

Speaking this week, Mario Draghi, the president of the ECB, said current rules “discriminate ABS against other very similar instruments, such as covered bonds.”

Andy Haldane, the Bank of England's incoming chief economist, recently described securitisation as “a financing vehicle for all seasons” that should no longer be thought of as a “bogeyman”.

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