Bank to outline plans next week to extend liquidity aid

LONDON (Reuters) - The Bank of England will next week set out how it plans to provide further liquidity help to the financial system when the Special Liquidity Scheme window closes on October 21, Bank Governor Mervyn King said on Thursday.

The scheme, launched on Apr. 21, was aimed at easing the credit crunch by allowing banks to swap hard-to-trade mortgage assets for one-year government debt for a period of six months. The debt can then be rolled over for up to three years.

"We intend to consult on reforms to our Red Book, including, as I announced in June, plans for a permanent liquidity insurance facility, and to publish a consultation paper by the end of next week," King told parliament's Treasury Select Committee.

"At the same time, we will also set out arrangements to ensure the banking system as a whole will continue to be able to access liquidity insurance from the Bank of England from October 22. The objective of the new facility will be to provide short-term liquidity insurance to smooth the adjustment of financial institutions hit by unexpected shocks."

(Editing by Ruth Pitchford)