It should not have taken the British authorities quite so long to accept that the crisis in financial markets was threatening the wider economy. The US Federal Reserve and the European Central Bank were much quicker to take decisive action. But the Bank of England's offer to swap secure government bonds for riskier mortgage debt yesterday was a sensible and imaginative response to the credit crunch. While the idea of extending more credit to banks that are already overextended may sound alarming, and would have been unthinkable a year ago, it is far better to expose the taxpayer to limited risk now than to risk systemic failure in a panic-stricken banking system, which could turn the current shortage of loans into a prolonged drought and land the taxpayer with a bigger long-term headache.

Mortgage holders who have seen banks fail to pass on the Bank of England's rate cuts will naturally ask why greedy banks should get a helping hand. But for once the banks are being driven by fear, not greed. Despite central banks having lowered interest rates, dramatically so in the US, the rates that banks face in borrowing from each other have remained stubbornly high. At a time of acute uncertainty, banks are hoarding cash because they do not trust each other and the assets they hold. The liquidity crisis is essentially a crisis of confidence.

The only way to restore confidence in the system is for the authorities to show that they are genuinely committed to shoring up financial markets. The Bank of England's asset swap is designed to give lenders more long-term stability, lasting initially for a year but with the option to roll over for a further two. The deal is, rightly, structured to limit taxpayer exposure. Banks will not be able to swap any old junk for Treasury gilts, but only relatively sound mortgage and credt card debt. They will be charged penal rates, and the asset swap will value their debt at less than its face value. So stiff are the terms, in fact, that it remains to be seen whether the offer will actually achieve its goal of unblocking the system. But the banks have so far made enthusiastic noises.

The test of the new policy will be whether it succeeds in bringing down interbank lending rates closer to the Bank of England base rate. If that happens, it will pave the way for banks to have greater confidence, eventually, in providing credit more widely again. But for the foreseeable future, credit will remain tight. There will be no immediate rush to offer tempting new mortgage deals, because most banks are dangerously undercapitalised. They will need to raise new capital, through rights issues such as that proposed by Royal Bank of Scotland, before they can feel confident of lending on any scale again. It would be imprudent for them to do otherwise.

It would not be in the interests of the economy, nor of first-time buyers, to return to a situation in which people were encouraged to take out gargantuan mortgages with tiny deposits - especially now that the value of homes is falling. Yet in recent weeks, the Chancellor and the Prime Minister have sometimes sounded more concerned to avert a house price crash than to correct a systemic banking failure. They would be wise to avoid the temptation to be mortgage brokers. Whether first-time buyers have to wait a while to get on the housing ladder is a secondary issue to that of restoring confidence. Credit availability cannot improve until a stable financial environment is restored: that must be the priority.