The Bank of England launched a new facility on Tuesday to provide sterling liquidity to the banking system if current exceptional stresses on global financial markets spread to Britain's interbank lending market.

Just days after Bank joined other major central banks to boost the global supply of dollar liquidity, Bank said its new Extended Collateral Term Repo (ECTR) Facility would enable it to offer banks 30-day sterling liquidity on an ad hoc basis.

There is currently no shortage of short-term sterling liquidity in the market. But should that position change, the new facility gives the Bank additional flexibility to offer sterling liquidity in an auction format against the widest range of collateral, the Bank said in a statement.

The Bank already holds regular indexed long-term repo operations to deliver liquidity to the banking system, and also offers the Discount Window Facility, which provides liquidity to banks on a bilateral basis with a term of up to one year.

It said its new facility came in light of the continuing exceptional stresses in financial markets and that its design had been influenced by feedback from market contacts.

The new Extended Collateral Term Repo Facility will have an auction format, with loans available for 30 days against the same collateral that are eligible for use in the Discount Window Facility, the Bank said.

Banks that might wish to use the ECTR are required to pre-position their collateral, that is, notify the Bank of a possible future intention to make use of the facility and disclose the collateral they would offer.

The Bank accepts as collateral sovereign debt, residential mortgage-backed securities, securitised credit card debt, student and consumer loans and some types of asset-backed commercial paper, amongst other assets.

It said the size of any ECTR operation would be announced the day before the operation at 4:00 p.m. BT, with auctions taking place at 10:30 a.m. BT.

ECTR operations will be announced at the discretion of the bank to respond to actual or prospective market-wide shortages of short-term sterling liquidity, it said.

(Reporting by Fiona Shaikh and David Milliken; editing by Anna Willard)