Britain's banking system is set for an unprecedented £50bn cash injection, designed to ease fallout from the credit crunch.

The Bank of England will set out plans for swapping potentially risky mortgage debts in return for government-backed bonds.

There was even speculation that the size of the issue could be doubled to £100bn if the initial offering failed to free up the property market.

Banks have been reluctant to lend money to one another following the collapse of the sub-prime mortgage market, limiting the amount of cash available for new home loans.

Chancellor Alistair darling told BBC 1's Andrew Marr show yesterday: "We are trying to unbung that situation so that the Bank will be making money available to the British banking system.

"It will be lending the money, so it's got to be repaid, and we will take securities in return for it. But the idea behind it is that it will open up the market and it will begin the process of opening up the mortgage market which will help householders."

Critics have warned that the taxpayer is taking on the banks' risks, and could be left nursing heavy losses if the property market keeps dropping and homeowners default. The Government is also likely to face a row over whether the bonds should be counted as Exchequer debt.

But Mr Darling, who will make a statement on the situation to the Commons as it returns from a two-week recess today, insisted the money will be repaid.

"We believe that this will be an essential step in trying to get the financial market stabilised," he said. "That in turn will help the mortgage market too.

"But it's also important that the banks begin now to disclose the extent of their losses and explain how they are going to rebuild their capital."

The current economic turmoil had been an "unprecedented shock to the system - we haven't seen this in a generation", he said.

The Chancellor compared the situation to a dose of food poisoning, where "some aspects of it just have to work their way through the system".

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