The move would see it following in the footsteps of US Treasury secretary Henry Paulson, who is pursuing a $700bn plan to create a ‘bad bank’ to buy sub-prime loans that are weighing down the balance sheets of US banks.
Paulson has called on central banks around the world to follow suit with their own schemes to tackle liquidity problems.
A spokesman for the Treasury says: “We are not going to speculate about measures but the chancellor will take whatever action is necessary to restore financial stability.”
The G7, which represents seven of the world’s largest economies, has endorsed Paulson’s move and says it hopes other G7 countries will take action to stabilise their markets.
A statement from the G7 says: “We strongly welcome the extraordinary actions taken by the US to enhance the stability of financial markets.”