Mumbai: The Bank of England has unveiled a plan to swap government bonds worth 50 billion pounds (around $100 billion) against risky mortgage debts held by banks in a bid to ease the effects of a credit crunch on the banking system.

Under the plan, BoE would allow banks to swap mortgage-backed bonds which have become illiquid for specially-issued government bonds, initially for one year and renewable for a total of three years.

"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," BoE governor Mervyn King said in a statement.

The facility would be available for assets existing at the end of 2007, the central bank said.

The BoE move is aimed at freeing up bank balance sheets and allowing them to lend more to consumers who face declining house values amidst soaring oil and food prices.

The scheme will boost confidence in the market, UK finance minister Alistair Darling said.

"What we're doing is providing banks with things they can trade," Sky television quoted Darling as saying.

"This in turn will restore confidence to the market and will begin to get us back into a situation where we see banks being able to lend to each other and therefore the money being available to lend to businesses and individuals," he added.

Darling noted that the risks of the mortgage-backed bonds stayed with the banks and was not taken on by the authorities.

"The taxpayer's interest is being protected," he said.