Bank of England Announce Plans To Overhaul Lending Operations

Fri, 17 Oct 2008

The Bank of England (BoE) has revealed plans to launch a number of reforms aimed at improving the liquidity of UK banks .

The Bank is to set up permanent schemes for offering liquidity insurance to commercial banks, replacing the Special Liquidity System it launched in April to cope with the credit crunch.

From Monday, banks will be able to use a Discount Facility Window to borrow government bonds or cash from the Bank against a wide range of collateral for 30 days.

The interest rate will increase according to how much banks want to borrow and how risky their collateral is.

The Bank has also proposed the introduction, after further consultation, of permanent long-term repo open market operations against "broader classes of collateral", to be auctioned under a mechanism where counterparties bid separately and against different types of collateral.

Governor Mervyn King said: "These arrangements set out our liquidity provisions in a systematic way to help banks plan their access to central bank liquidity, and so add certainty."
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