FSA blocks ‘liquidity swaps’

The FSA has blocked an undisclosed number of trades of undisclosed assets between banks and insurers.

The banks/insurers say these would help their liquidity, by lending/borrowing a relatively easy to trade portfolio of gilts or bonds, secured against a portfolio of other less-liquid assets.

The FSA says the resulting cross-holdings would make the financial system more unstable, and particularly that it would tie the insurance sector more closely to the banks.


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