As the talks between HBOS and Lloyds TSB were confirmed, the Bank of England announced it was extending its liquidity operation, giving more time for banks to swap mortgages for government bonds.

The extension of the Special Liquidity Scheme, which was launched in April and expected to be closed next month, would help facilitate a merger between HBOS and Lloyds TSB because it would give more time for a combined company to assess its funding needs and access relatively cheap and stable funding, which lasts for up to three years.