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Document Type

Case Study

Case Series

Market Liquidity Programs

JEL Codes

G01, G28

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 £185 billion of eligible collateral for Treasury bills.

Date Revised

2020-10-08

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