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UK Banks May Swap £90 Billion Of Debt With The BoE

Even though the £50 billion gamble which the UK government announced recently created something of a stir in the debt markets, we are hearing news that the figure of £50 billion may actually be increased to nearer £90 billion. It seems that the banks are climbing over each other to swap their more risky investments for government guaranteed debt in order to shore up their balance sheets.

While there has been no official announcement of a change to the original figure, the government are understood to be very sympathetic to the cause of the banks and are keen to get the economy moving again. If the figure is increased it will further strengthen the argument that the government are giving the banks an 'easy way out'.

It will be interesting to see how the banks and the government respond to this latest piece of speculation, knowing that recent cases of no-comment have caused confusion and suspicion in the market place.

If the banks are allowed to increase the potential amount of debt they can swap this may well see greater liquidity return to the money markets faster than originally thought, but it is also an extra risk. One which not everyone will appreciate!

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