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UK: Thoughts on the SLS and EUR/GBP

Fri, Sep 19 2008, 08:01 GMT
by John Hydeskov

Danske Bank A/S


  • • The Bank of England's Special Liquidity Scheme has allowed UK banks to swap illiquid assets for treasury bills since April. The SLS has been enormously popular among UK banks as this has given them funding in return for illiquid mortgage-backed securities.
  • • The SLS should have come to an end on 20 October 2008 but due to 'disorderly market conditions' the BoE yesterday announced an extension to 30 January 2009. That was to provide additional time for banks to plan their access to the scheme in 'an orderly fashion'.
  • • We argue that an end of SLS could generate temporary demand for sterling relative to the euro, all other things being equal. There are, however, several caveats to this.






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