The Bank of England’s Special Liquidity Scheme

Quarterly Bulletin 2012 Q1
Published on 27 March 2012

By Sarah John, Matt Roberts and Olaf Weeken of the Bank’s Sterling Markets Division.

The Bank of England introduced the Special Liquidity Scheme (SLS) in April 2008 to improve the liquidity position of the UK banking system.  It did so by helping banks finance assets that had got stuck on their balance sheets following the closure of some asset-backed securities markets from 2007 onwards.  The Scheme was, from the outset, intended as a temporary measure, to give banks time to strengthen their balance sheets and diversify their funding sources.  The last of the SLS transactions expired in January 2012, at which point the SLS terminated.  During the period in which the SLS was in operation, the Bank undertook a fundamental review of its framework for sterling market operations and developed a new set of facilities to provide ongoing liquidity insurance to the banking system.  This article explains the design and operation of the SLS and describes how that experience has influenced the design of the Bank’s permanent liquidity insurance facilities.

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