United Kingdom: Financial Sector Assessment Program—Review of the Bank of England’s Liquidity Provision Framework—Technical Note
IMF Staff Country Reports, June 17, 2016
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- United Kingdom: Financial Sector Assessment Program—Review of the Bank of England’s Liquidity Provision Framework—Technical Note
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Bibliographic details
- Published: June 17, 2016
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781475559446.002
Overview
- This paper provides a review of the liquidity provision framework and recent developments in the United Kingdom.
- The Bank of England’s (BoE’s) Sterling Monetary Framework is the mechanism used in the United Kingdom to direct liquidity provision.
- The BoE’s relatively wide-ranging and accessible liquidity insurance framework raises three key questions and four other issues relevant to financial stability.
- The quantification of implications of the liquidity framework for the BoE balance sheet is still a work in progress.
- Safeguards are generally sufficient, although the BoE should ensure that lower level of supervisory scrutiny directed at small- and medium-sized enterprises does not adversely impact its horizon-scanning for firms at risk of requiring liquidity support.
Key findings and observations
- The BoE’s Sterling Monetary Framework is the central mechanism for directing liquidity provision in the United Kingdom.
- The liquidity insurance framework is characterized as relatively wide-ranging and accessible.
- The framework raises:
- Three key questions relevant to its design and operation.
- Four other issues of relevance to financial stability.
- Quantification of balance-sheet implications remains incomplete and is described as a work in progress.
- Safeguards around liquidity provision are assessed as generally sufficient.
- A specific supervisory concern: lower level of supervisory scrutiny of small- and medium-sized enterprises could weaken horizon-scanning for firms that may require liquidity support.
Policy implications and recommendations
- Continue quantifying implications of the liquidity framework for the BoE balance sheet to inform policy calibration.
- Maintain and, where necessary, strengthen safeguards to ensure liquidity provision does not create undue risks.
- Ensure that lower levels of supervisory scrutiny applied to small- and medium-sized enterprises do not impair horizon-scanning for firms at risk of needing liquidity support.
Subjects and keywords (as provided)
- Subjects: Asset and liability management, Banking, Financial crises, Financial institutions, Financial regulation and supervision, Foreign currency liquidity, Insurance, Lender of last resort, Liquidity, Liquidity risk
- Keywords: Bank., BoE base rate, BoE sterilization operation, central bank, CR, ELA, ELA framework, Foreign currency liquidity, Global, horizon-scanning function, Insurance, ISCR, Lender of last resort, Liquidity, liquidity insurance framework, Liquidity risk, swap line