In a smaller, but longer, echo of a plan initiated by the Federal Reserve in the United States, the Bank of England is offering to take on as much 50 billion pounds ($100 billion) of British banks' risky mortgage debts in exchange for government securities.

The effort is intended to help thaw the credit market in Britain. The troubled mortgage market is presenting Prime Minister Gordon Brown with his biggest challenge to date.

The Bank of England said the size of the swap could grow. "There is no arbitrary limit on it," Mervyn King, the governor of the Bank of England, told reporters.

"The purpose is to protect the rest of the economy from the banks, not to protect banks from their previous decisions," King said. "It's not true to say that they are being bailed out in any sense."

The Fed’s swap facility was for as much as $200 billion of securities and for 27 years. The Bank of England's plan will be for asset swaps of one year, with the possibility of a renewal that would extend it to as much as three years.

British banks will receive in exchange nine-month Treasury securities. The fees paid by the banks will be based on the Libor, but not at a penalty rate. The risk of losses on the loans, however, remain on the books of the banks.

Robert Peston of the BBC notes that Bank of England is performing "what some will see as one of the greatest U-turns in its 300-year history."  

Until now, the central bank has taken a more hands-off approach to the credit crisis compared with the Fed and the European Central Bank.

Indeed, Peston says that many have argued that if such a swap plan were in effect when the credit crunch first took hold last summer, that Northern Rock, a big British mortgage lender that depended on the market for its short-term financing, would have survived. Northern Rock was ultimately nationalized by the government.

The immediate reaction to the plan was lukewarm

Richard McGuire, of the investment bank RBC Capital Markets, told the Times of London that the plan was "unlikely to do much to inject new life into the U.K.'s troubled mortgage and housing markets, given the costly nature of the exercise."

As Mark Whitehouse and Carrick Mollenkamp of the Wall Street Journal point out, $100 billion is a small sum, given that total household-mortgage debt in Britain was more than $2 trillion at the end of last year. That is about 84 percent of Britain's gross domestic product, compared with 75 percent of the U.S. economy.