The Bank of England lent liquidity without creating new money

In early 2008 British banks were funding themselves with assets nobody would accept as collateral. Markets for mortgage-backed securities had closed, and banks hoarded cash instead of lending to each other.

The Bank of England's answer was a collateral swap, not a loan of new money. Banks placed eligible legacy assets — those existing before 31 December 2007 — into the Scheme and received UK Treasury bills in exchange, for a fee, for up to three years.

Because the bills could be used in the money markets, funding resumed; because the banks kept the credit risk on the swapped assets and faced haircuts, the taxpayer did not take on mortgage losses. HM Treasury indemnified the Bank against residual loss.

Usage peaked at £185bn of bills outstanding when the drawdown window closed on 30 January 2009, with 32 banks participating — over 80% of the eligible banking system's sterling balance sheet. The Scheme's transactions expired in January 2012, with costs covered by fee income.