Liquidity transformation, collateral assets and counterparties

Calebe de Roure and Nick McLaren

No 830, Bank of England working papers from Bank of England

Abstract: We investigate how counterparties’ characteristics, and the collateral they use, interact with their demand for liquidity in the Bank of England’s (BoE) operations. Between 2010 and 2016 there was regular usage of two BoE facilities: Indexed Long-Term Repos (ILTR) and the Funding for Lending Scheme (FLS). Using BoE proprietary data, we show that participation in ILTR is not skewed towards riskier counterparties, and is instead consistent with safe counterparties using the facilities to meet their liquidity needs. Collateral assets used for FLS are less liquid, since almost all assets are loan portfolios. Riskier and larger institutions are more likely to pre-position collateral in the FLS, but these counterparties do not subsequently draw upon FLS more than others do. Overall, our study points to no systemic misincentives; rather banks react to incentives in the manner intended by the policy objectives. Our results support the view that the central bank can provide market liquidity without absorbing undue risks onto its balance sheet.

Keywords: Money demand; collateral assets; counterparties (search for similar items in EconPapers)
JEL-codes: E41 E58 G21 G28 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2019-09-27, Revised 2020-06-29
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... d-counterparties.pdf Full text (application/pdf)

Related works:
Journal Article: Liquidity transformation, collateral assets and counterparties (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0830

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().