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February 4, 2009

UK lenders borrow £185bn under the SLS

by Gill Montia

Story link: UK lenders borrow £185bn under the SLS

UK financial institutions have borrowed £185 billion from the Bank of England’s special liquidity scheme (SLS) since April of last year.

The scheme soon became a lifeline to UK mortgage lenders by providing regular injections of cash and allowing them to swap difficult to trade mortgage-backed securities for Treasury bills.

It was originally set up for six months and the Bank’s governor, Mervyn King, was known to be extremely resistant to extending it.

However, during the turmoil that followed the collapse of Lehman Brothers in September, there was little choice but to continue with the facility, which was adapted to allow banks to use a wider range of assets as collateral.

Further changes are expected as pressure mounts on the Government to follow the recommendations of the Crosby report and free up mortgage lending by accepting new mortgage-backed securities as collateral.

Under the SLS only those mortgaged-backed securities held by banks before 31st December 2007 can be used.

According to official figures, 32 banks and building societies have taken part in the scheme, involving assets valued at £287 billion.


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