Press reports suggest that the planned facility to allow banks to swap mortgage assets for gilts could be as large as £100 billion. If true, this would make it much more significant that the Federal Reserve’s equivalent scheme – the term securities lending facility (TSLF).

The TSLF is currently capped at $200 billion, of which $100 billion had been used as of Wednesday 9 April. $200 billion is equivalent to 1.8% of the US broad money supply (expanded M2). The same percentage of UK broad money M4 would be £29 billion.

The UK scheme arguably needs to be larger because the Fed has introduced a range of other measures to help markets. Total Fed support amounts to $470 billion* or 4.1% of broad money. The equivalent UK sum would be £69 billion. From this should be subtracted the £25 billion of three-month funding the Bank of England has offered to banks against AAA-rated asset-backed securities. This suggests the UK swap facility should be £44 billion to equate total UK and US support. (An earlier post suggested additional aid of about £40 billion was necessary to ease mortgage market strains.)

Demands for a £100 billion facility seem excessive. The success of the scheme will depend as much on the precise collateral rules and term of the swap as its size.

* Breakdown: TSLF $200 billion, term auction facility $100 billion, additional term repos $100 billion, swap facilities with ECB and Swiss National Bank $36 billion, primary credit discount window lending $7 billion (9 April), primary dealer credit facility lending $26 billion (9 April).