Bank of England (BoE) to extend the range of collateral eligible in the Discount Window Facility (DWF) to include portfolios of loans
22 July 2010The LMA welcomes the decision of the Bank of England to include loans, which meet certain criteria, as eligible security in the DWF and sees it as a significant initiative in improving liquidity and reducing risk in the financial system.
The LMA has argued for the inclusion of loans as eligible collateral for central bank liquidity facilities for some time and responded to the BoE's recent consultation paper on this matter. The LMA response followed a consultation with its own members as to the likely demand for including loans as collateral. It was clear from this, that despite the need for some operational and process issues to be addressed, there would be interest from LMA members in working with the BoE to position loans as collateral, particularly as a source of liquidity in stressed market conditions.
The LMA has offered to work with the BoE on this initiative, particularly in the area of documentation, to facilitate the positioning of loans into the DWF.
Clare Dawson, Managing Director at the LMA, said: "It is very encouraging to see the Bank of England looking at additional ways to improve liquidity to ensure the stability of the financial system. These measures will further promote the use of the loan product, which must be of assistance to economic recovery".