Having thrown money at the banks - saved the world, considered worldwide depression .....

BOE Special Liquidity Scheme - the Plan - April

On 21st April 2008 the Bank of England launched their Special Liquidity Scheme (SLS)providing participating banks to swap temporarily their high quality mortgage-backed and other securities for UK Treasury Bills.

With securities markets shut the banks had on their balance sheets an 'overhang' of unsealeable and unpledgeable assets (they were also in fact simply lying about their value in their books and had been for some time.

The SLS Scheme, let the banks swap illiquid assets of allegedly "high quality" for Treasury Bills- which near money or as good as money in the till.

The scheme has three key features:

Swaps would be for a period of 1 year and may be renewed for a total of up to 3 years.

The risk of losses on their loans remains with the banks.

The swaps are available only for assets existing at the end of 2007 and cannot be used to finance new lending.

Initial discussions with banks suggested that use of the scheme is initially likely to be around £50bn.

The Scheme will be "ring-fenced" and independent of the Bank of England's regular money market operations. So it will not interfere with the Bank's ability to implement monetary policy.

BOE Special Liquidity Scheme - the Plan - 9 months in operation.

Some details have been published yesterday about the BOE/SLS scheme (the drawdown period for the SLS closed on 30 January) which are truly breathtaking.

1. Biggest user was HBOS which packaged £ 53 Bn alone.
2. 32 banks and Building Societies participated.
3. More than 80% of the Sterling Balance Sheet Items of the participants has been swapped.
4. This meant a staggering £185 Bn. was borrowed.
5. This was swapped for £287 nominal value of packages of mortgages in the first 9 months of the scheme.
6. This means the borrowing banks accepted a "haircut " of £102 Bn which the BOE factored in as an insurance on a reduction in the value of the loans.
7. This BOE "haircut " can grow as the original intention was that the "The risk of losses on their loans remains with the participating banks."

The bottom line is of course that no-one really knows what has happened to the Treasury Bills - has their value been used to fund uy outs, loans overseas, bonuses, pay offs to redundant bankers who steered their banks onto these financial shaols by producing fraudulent balance sheets.

...and of course there is still the complaint that no more funds are available to commerce and industry after this huge exercise.

Because of this other facilities remain open - for example , the Bank’s Discount Window Facility, introduced in October 2008 as part of the Bank’s framework for its operations in sterling money markets remains.

Eligible collateral is wider than that accepted in the SLS and is not limited to assets on balance sheets before a particular date. In recognition of the continued stresses in financial markets, the Bank announced on 19 January 2009 that, for an additional fee, access to its Discount Window Facility was being extended to 364 days in addition to the normal 30-day window, which would continue to be available.

The Bank of England has also today reduced Bank Rate by 0.5 Percentage Points to 1.0% and their Press release states ..."Credit conditions faced by companies and households have tightened further. The underlying picture for consumer spending appears weak. Businesses have responded to the worsening outlook by running down inventories, cutting production, scaling back investment plans and shedding labour. "

UPDATE : Daily Mirror Friday

The Government / taxpayer owns 68% of hugely loss making RBS who have persistently produced fraudulently valued assets on their balance sheets for several years.

RBS's investment banking division paid out £1.83 billion in salaries in 2007, most of it in the form of bonuses, and is reportedly ready to pay out further bonuses for last year.