March 12, 2009 / 8:57 AM / in 11 years

Bank hits back at Mandelson on car industry aid

LONDON (Reuters) - The Bank of England rebuked business minister Peter Mandelson in a statement on Thursday after he said the central bank was dragging its feet on help for Britain’s struggling car industry.

Business Secretary Peter Mandelson speaks during a two-day long "The Partnership Summit 2009" in New Delhi January 19, 2009. REUTERS/B Mathur

Mandelson said late on Wednesday that he wished that the BoE would be quicker in coming to the aid of car companies’ financing arms, an unusual intervention given the central bank is meant to be independent of government.

“The Bank of England is puzzled by Lord Mandelson’s comments yesterday,” it said in a statement. “It is not the role of the Bank to provide sector-specific support. That is clearly and properly a matter for the Government.”

The BoE said it had conducted talks with relevant government departments and representatives of the motor industry to explain the way in which the central bank was trying to boost liquidity to the banking sector.

It said it had since last year widened the collateral it accepts in exchange for central bank cash to include consumer and corporate loans, including for those to buy cars.

Its new Asset Purchase Facility is also open to non-financial companies that meet the eligibility criteria, it said. But so far the BoE has only bought gilts and commercial paper through the facility.

The motor industry, however, pleads that many firms are not able to take advantage of the BoE scheme and wants the central bank to broaden out its criteria for eligibility.

“We’re trying to get this widened so it’s opened to all motor finance lenders because not all of them issue commercial paper — it’s about finding a solution for all lenders,” said a spokeswoman for the Finance and Leasing Association.

Mandelson held talks with car makers on Wednesday and the government said Britain had received clearance from the European Commission to go ahead with a 2.3 billion pound aid package for the industry.

Asked to comment, Prime Minister Gordon Brown’s spokesman said: “Lord Mandelson himself said discussions were making progress on this front. Of course, we recognise the urgency of this and there will be further discussions between the Treasury and the Bank of England.”

Editing by Patrick Graham

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