As part of the UK government’s plans to stimulate the economy, there is a move to create a state-owned “bad bank”, it has been reported.

Reports said the scheme, which is being considered by ministers, would accept “toxic assets” like risky loans on many banks’ balance sheets so as to ease the impact of the credit crunch.

Prime Minister Gordon Brown and Chancellor Alistair Darling are expected to discuss this, amongst other options, with the banking sector in the coming days.

This is considered by the government as one of the measures aimed at getting banks into lending again.

According to the BBC’s business editor, Robert Preston, the “bad bank” envisaged may fail to become a reality owing to “huge difficulties in valuing the assets to be placed in them and in defining the assets that may be placed in them.”

The government is expected to announce a new package next week that would hopefully encourage lending to major businesses as soon as possible.