Liquidity swap activity will be driven by bank funding needs, say bankers

Liquidity swap market is expected to grow, but the European Central Bank's long-term refinancing operation has reduced demand for liquidity trades in the short-term, say bankers

The UK market for liquidity swaps between banks and insurers is anticipated to grow, following the publication of the Financial Services Authority's (FSA) guidance on the transactions, despite the current availability of cheap funding from the European Central Bank (ECB), bankers predict.

The market for liquidity swaps dried up last year after it emerged that two liquidity swaps were blocked by the FSA, amid concerns these transactions led to systemic risk by increasing the interconnection