MW Bank of England announces additional support measures as emergency bond-buying plan winds down

By Barbara Kollmeyer

The Bank of England said Monday it will implement additional measures "to support an orderly end" to its emergency bond-buying plans announced last month, aimed at preventing a financial crisis in the U.K.

As the bank previously announced, its emergency intervention will end on Friday Oct. 14. In the first of three measures, the BoE said it is prepared to boost the size of its daily auctions to "ensure there is sufficient capacity for gilt purchases" ahead of Friday. The central bank said it has carried out eight daily auctions, offering to buy up to GBP40 billion ($44 billion), and has purchased around GBP 5 billion ($5.5 billion) worth of bonds.

"The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to GBP5bn in each auction. The maximum auction size will be confirmed each morning at 9am and will be set at up to GBP10bn in today's operation. The Bank's existing reserve pricing mechanism will remain in operation during this period," it said in a statement

In a second measure, the BoE plans to launch a Temporary Expanded Collateral Repo Facility (TECRF), which will offer banks the option of easing liquidiy pressures for clients' liability-driven investments $(LDI)$ through liquidity insurance operations, which will run beyond the end of this week.

"Under these operations, the Bank will accept collateral eligible under the Sterling Monetary Framework $(SMF)$, including index linked gilts, and also a wider range of collateral than normally eligible under the SMF, such as corporate bond collateral," said the BoE.

Finally, the BoE said it stands ready to support liquidty pressures facing LDI funds via regular indexed long-term repo operations.

"This permanent facility will provide additional liquidity to banks against SMF eligible collateral, including index linked gilts, and so support their lending to LDI counterparties. Liquidity is also available through the Bank's new permanent Short Term Repo facility, launched last week, which offers an unlimited quantity of reserves at Bank Rate each Thursday," said the BoE.

"Beyond the end of this week's operations, the Bank will continue to work with the U.K. authorities and regulators to ensure that the LDI industry operates on a more resilient basis in future," it said.

-Barbara Kollmeyer

(END) Dow Jones Newswires

October 10, 2022 02:35 ET (06:35 GMT)

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