On 21 April 2008, the Bank of England (BoE) launched the special liquidity scheme (the scheme) to improve the liquidity position of the UK banking system by allowing banks and building societies to swap for up to three years some of their illiquid assets for UK Treasury Bills. The BoE has now published a notice setting out further details as to how the scheme was used.  

Key points include:  

  • Treasury Bills with a face value of approximately £185bn have been lent under the scheme. Since April 2008, the number of banks and building societies accessing the scheme was 32. In aggregate, those firms account for over 80% of the sterling balance sheet of the financial institutions eligible to use the scheme.
  • The total nominal value of securities held by the BoE as collateral in the scheme amounts to approximately £287bn. The BoE's valuation of those securities as at 30 January 2009 was approximately £242bn, an effective discount to par of about 16%.
  • Most of the collateral received has been residential mortgage-backed securities or residential mortgage covered bonds.
  • During the remaining life of the scheme the BoE will continue to call for margin should the haircut-adjusted value of the collateral fall relative to the value of Treasury Bills lent. The BoE also reserves the right to vary haircuts on the collateral.
  • Securities are valued by the BoE using observed market prices that are independent and routinely available publicly. The BoE reserves the right to use its own calculated prices, including where such independent market prices are unavailable.  

The drawdown period for the scheme closed on 30 January 2009 although it will remain in place for three years, thereby providing participating institutions with continuing liquidity support and certainty.  

View Bank of England publishes details of special liquidity scheme, 3 February 2009