Paul Fisher, the Bank of England's Executive Director for Markets, gave a speech at the National Asset Liability Management global conference in London on 29 March, 2012.
"The Bank of England’s market operations are designed to allow the use of its balance sheet to deliver on its two core purposes of monetary and financial stability. Specifically, they allow us to perform three important tasks:
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First, to implement in the market the decisions of the Monetary Policy Committee (MPC) on Bank Rate and, since March 2009, on the quantity of asset purchases financed by the issuance of central bank reserves (better known as Quantitative Easing or QE).
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Second, they enable us to provide liquidity insurance to the banking system, and hence reduce the cost of any unexpected disruptions to the commercial banks’ payment services to the UK economy.
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Third, they provide the bedrock for the Bank’s market intelligence work, which feeds in to both core purposes."
Mr Fisher describes in detail two of the new operations which provide liquidity insurance: the Discount Window Facility (DWF) and the recently announced Extended Collateral Term Repo Facility (ECTR). In order to do that, he first summarises the principles governing the Bank’s provision of liquidity insurance, and how those have contributed to a complete overhaul of the Bank’s operations since the start of the financial crisis in 2007.
In this speech today, he has set out some of the principles behind the Bank of England’s revised, permanent and public facilities for providing liquidity insurance to the banking system. Banks are expected to self-insure for most of their liquidity needs – and while there has been encouraging progress to date, more is needed on that front. But if necessary, the Bank of England stands ready to provide support to solvent and viable institutions, against sufficiently good collateral, for an appropriate fee. It is important that commercial banks preposition their collateral so that due diligence can be performed and the maximum benefit achieved. The new Sterling Monetary Framework, which has been reformed almost in its entirety since 2007, reflects the Bank of England's experience during the crisis and lessons from some of the temporary measures that had to be put in place. Doubtless the Framework will continue to evolve in future, but the provision of such published facilities should help to make the system more resilient in the years to come.
Full speech
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