BRITAIN’S biggest banks are setting up emergency credit lines to small building societies giving them backdoor access to the Bank of England’s £50 billion crisis loan facility.

The move is one of a number of unofficial conditions imposed on the banking industry in exchange for the bail-out. It was first put forward at a meeting in Downing Street a fortnight ago.

Small building societies have in effect been excluded from direct access to the Bank’s emergency loans programme.

It allows lenders to deposit mortgages in exchange for cash, but they must first be parcelled into bonds, another type of financial instrument.

Only the UK’s largest building societies, such as Nationwide, Britannia and Yorkshire building society, have the necessary legal frameworks in place.

Lenders such as HSBC, Barclays, Lloyds TSB and Royal Bank of Scotland are planning to behave like central banks for smaller societies, according to banking sources. The move has been encouraged by Mervyn King, the Bank’s governor.

The big banks will allow the societies to piggyback on their access to the Bank by posting individual mortgages as collateral. The commercial banks are expected to charge a fee for the service.

The Bank’s £50 billion credit line was drawn upon last week, although officials will not say which institutions used it.

All the UK’s large banks have made a commitment to the Bank to draw on the facility, to ease fears that banks could be stigmatised for using it.

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