Ex-MPC member slams SLS mistake

A leading economist and former Monetary Policy Committee member has branded the decision to attach a deadline to the Special Liquidity Scheme as a tragic error.

Willem Buiter, professor of European political economy at the London School of Economics and Political Science, says the Bank of England made a fatal mistake in announcing it planned to close off access to the SLS in October.

Addressing delegates at the annual Council of Mortgage Lenders conference, Buiter says: “An incredible mistake was made in announcing in the summer that the SLS would close in October.

“That was really the death sentence for HBOS.

“When you announce the closing of a facility by a specific date you court a focal point for speculators to co-ordinate on.

“It is a tragic error.”

Buiter says the answer to the success of the SLS in restoring the flow of lending lies in lifting any kind of scheme limitations.

He adds: “What we need is an SLS on steroids.

“It needs to be open-ended in terms of time, uncapped in terms of amount, and allow for new originations. If it doesn’t have all three features it won’t work.”