The Bank of England announced an unprecedented $100 billion ( £50 billion) plan to allow banks to swap mortgage-backed securities for British Treasury bills in a bid to bail out Britain's ailing banking system.

One of the UK's largest lenders, Abbey, already put the plan into action and cut 0.1 percent on its two-year tracker and flexible mortgages from April 30, which represents a tiny proportion of the mortgage market.

The bank said it aims to open the interbank lending market and restore normal lending practices to banks and home buyers who have been hard hit by the subprime credit crisis.

The Bank of England's special liquidity scheme is designed to improve the liquidity position of the banking system and raise confidence in financial markets while ensuring that the risk of losses on the loans they have made remains with the banks, said central bank Governor Mervyn King.

The Bank of England is offering asset swaps starting from today and will continue for six months.

The swaps are for one year, but renewable for up to three years, and only for assets which existed at the end of last year. The risk of losses on the swapped assets lies with the commercial banks, not with the taxpayers.

The bank hopes its biggest-ever funding injection will boost liquidity, and in turn ease restrictions in the mortgage market that have made home loans more expensive, by encouraging interbank lending.

British Chancellor Alistair Darling has backed the $100 billion scheme to kick-start lending and will have a meeting at 11 Downing Street on Tuesday where he will discuss the best ways to help those coming to the end of fixed rate deals.

The British Bankers' Association said the plan was an an innovative and unique policy response.

Restoring confidence in the wholesale funding market will strengthen the financial system and the stability of our economy, the association said.

The decision to inject the hefty sum is a first for the Bank of England, which usually follows a more hands-off policy as opposed to its international counterparts, the U.S. Federal Reserve and European Central Bank.

Meanwhile, Abbey bank said it expected the central bank's move to reduce the cost of banks lending to each other in time.

It is an important step in bringing greater liquidity to the market, an Abbey spokesman said according to BBC.

We will continue to review the cost of funding and will look to reflect further changes in our mortgage range going forward. We hope other lenders will also act to support the stimulation of the mortgage market, he said.

He added that Abbey believes that the extra funding will, in time, lower the interest rate at which banks lend to each other.

United kingdom Alistair Darling