Auctions to be held under the Extended Collateral Term Repo Facility

In his Mansion House speech last night, Sir Mervyn King, the Governor of the Bank of England, announced that in the current turbulent period, the Bank of England will be commencing operations under the Extended Collateral Term Repo (ECTR) Facility.  Activation of this Facility, introduced in December 2011, is intended to mitigate prospective risks to financial stability arising from a market-wide shortage of sterling liquidity by lending to the banking system against the widest range of collateral.

The Bank intends to hold an ECTR auction at least monthly until further notice.  The first auction under the ECTR Facility will be held on 20 June 2012.  In its ECTR auctions, the Bank will offer sterling liquidity with a term of 6 months against collateral pre-positioned for use in the Bank’s Discount Window Facility (DWF).  The minimum bid rate in these auctions will be a spread to Bank Rate of 25 basis points.  All firms registered for access to the Bank’s DWF are eligible for ECTR auctions.  The size of ECTR auctions will be announced the day prior to each operation and will be subject to a minimum of £5 billion.

Property booms, stability and policy – speech by Paul Tucker

In the Alastair Ross Goobey Memorial Lecture given at the Investment Property Forum in London, Paul Tucker – the Bank’s Deputy Governor for Financial Stability and member of the Financial Policy Committee – identifies lessons from the commercial property boom and bust for regulation, and outlines some thoughts on the interactions between regulatory, central bank liquidity and monetary policies.

 

Reviewing developments in commercial property lending in the UK and abroad before and after the crisis, Paul Tucker observes that many economies experienced a lending boom that turned to a bust.  He highlights three lessons from this. 

 

First, the distinction sometimes made between safe commercial banks and risky investment banking can be misleading.  A highly levered commercial bank lending largely to highly-geared property investors can be risky.  Paul Tucker says that in response the rules of the game for finance are being overhauled for all types of banks.