British banks draw down liquidity
UK banks have drawn down £185 billion of treasury bills under the Bank of England’s Special Liquidity Scheme.
The banks could have swapped mortgage-backed securities for bonds up to a total of £250 billion under the scheme.
Since the scheme was launched in April last year, 32 UK banks and building societies have taken part.
The total value of bank issued securities held by the Bank of England as collateral under the scheme amounts to £287 billon.
The Bank of England has valued these securities, at the end of January, at approximately £242 billon, a discount to par of about 16 per cent.
Most of the collateral is residential mortgage-backed securities or residential mortgage covered bonds.
The Bank of England can call for further margins should the value of the securities fall below the Treasury’s bond valuations, and will regularly value the securities using independent market prices.
The banks and building societies are being charged a fee for the bonds based on the spread between the three-month London Interbank Offered Rate and the three-month General Collateral gilt repo rate.
The average spread during the drawdown period of the scheme was 115 basis points.
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