Holidays cancelled for BOE members

“The clearing banks in the UK will be meeting today with the BOE. It has been reported in the press that members of the BOE’s board (including the Governor, Mervyn King) have cancelled holidays and regional appointments to convene. The BOE is currently looking dangerously behind the curve versus the actions of other central banks in managing liquidity in the UK banking system. Paul Tucker, Executive Director for Markets at the BOE, made a speech just a couple of weeks ago reflecting the need for a “reform” of the BOE’s money market function and the importance of removing the stigma associated with using the penal facility.

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote a more orderly market. As of Monday the new TSLF facility (which will be in place for 6 months) offering primary dealers the ability to collateralize a broader range of investment-grade debt securities (includes ABS) was activated. The facility of $200bn (25% the Fed’s balance sheet) effectively allows banks / dealers to swap in to more liquid US treasuries for up to 29 days. An additional facility (PDCF) was also made available at 25bps over fed funds (i.e. 2.5%) for up to 90 days again on a broad range of collateral (including RMBS) this time for cash. The US banks / brokers short term liquidity requirements have thus been alleviated - reducing the likelihood of another Bear Stearns style train crash. The ECB had already been offering a very generous facility with the broadest parameters for collateral (they have repo'd €500bn). Looking at the reaction of HBOS share price fall (-15%) earlier week to rumours of liquidity problems (involving market abuse) this is clearly a stress point for the stock market.