BoE to make borrowing easier for banks
17 January 2014 London
Image: Shutterstock
The Bank of England has launched new indexed long-term repo operations (ILTR), which it believes will help to provide liquidity insurance to the banking system.
The regular market-wide ILTR operations are aimed at banks with a predictable need for liquid assets. The ILTR will provide consistent six-month committed liquidity against the full range of eligible SMF collateral.
Governor Mark Carney hinted at the possibility of easing the process of converting collateral to funds in October.
The move may indicate a growing belief at the bank that liquid assets are more valuable than less liquid assets. Conversely, yields tend to be lower on cash-equivalent, or highly liquid assets.
This will help to mitigate against the liquidity shortages that were prevalent during the financial crisis.
Mervyn King, the bank’s previous governor, was criticised for his attitude towards assets that, during normal market conditions, would be considered highly liquid. There was a reluctance to release capital, which some commentators believe prolonged the crisis.
In a statement, the Bank of England said that the new ILTR design was responsive to market conditions, with the amount of liquidity available rising with demand.
This new system will replace the bank’s current ILTR operations when it goes into effect on 11 February.
In a statement announcing the move, the bank says that the new ILTR auctions will increase liquidity and the range of available collateral.
The regular market-wide ILTR operations are aimed at banks with a predictable need for liquid assets. The ILTR will provide consistent six-month committed liquidity against the full range of eligible SMF collateral.
Governor Mark Carney hinted at the possibility of easing the process of converting collateral to funds in October.
The move may indicate a growing belief at the bank that liquid assets are more valuable than less liquid assets. Conversely, yields tend to be lower on cash-equivalent, or highly liquid assets.
This will help to mitigate against the liquidity shortages that were prevalent during the financial crisis.
Mervyn King, the bank’s previous governor, was criticised for his attitude towards assets that, during normal market conditions, would be considered highly liquid. There was a reluctance to release capital, which some commentators believe prolonged the crisis.
In a statement, the Bank of England said that the new ILTR design was responsive to market conditions, with the amount of liquidity available rising with demand.
This new system will replace the bank’s current ILTR operations when it goes into effect on 11 February.
In a statement announcing the move, the bank says that the new ILTR auctions will increase liquidity and the range of available collateral.
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