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The United Kingdom's Special Liquidity Scheme (SLS) (U.K. GFC)

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Abstract

Following the collapse of Bear Stearns Companies in early 2008, it became clear that there was no immediate prospect that the asset-backed securities (ABS) markets would start to operate as they had previously. Financial institutions relied heavily on ABS as collateral in the interbank lending market for funding and liquidity. The Bank of England (BoE) introduced the Special Liquidity Scheme (SLS) in April 2008 as a temporary measure to address the immediate liquidity problems facing the UK banking system at the time. Under the SLS, banks could exchange high-quality assets that had temporarily become illiquid for liquid UK Treasury bills. In turn, banks could use these Treasury bills in private markets to obtain cash. During the nine months that the SLS was open, 32 banks and building societies, representing over 80% of the sterling balance sheets of eligible financial institutions, exchanged a total of GBP185 billion of eligible collateral for Treasury bills.

Suggested Citation

  • Nygaard, Kaleb, 2020. "The United Kingdom's Special Liquidity Scheme (SLS) (U.K. GFC)," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 2(3), pages 504-523, April.
    • Handle: RePEc:ysm:ypfsfc:232323
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    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1107&context=journal-of-financial-crises
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    Keywords

    Bank of England; market liquidity; Her Majesty's Treasury; mortgage-backed securities; asset-backed securities; Treasury bills; gilt;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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