Banks should continue to build up the amount of collateral they have pre-approved for use in the Bank of England's emergency liquidity scheme, the Bank's executive director for markets Paul Fisher said on Thursday.
Fisher, who also sits on the Bank's Monetary Policy Committee, said the Bank's main emergency liquidity scheme, the 'discount window facility', now has about 265 billion pounds of collateral pre-approved, which would enable the BoE to inject around 160 billion pounds of liquidity.
Although not a substitute for firms building up their own holdings of high quality liquid assets to a more satisfactory level, that represents a very substantial ‘war chest' of potential liquidity in the event of significant adverse shocks, Fisher said.
The extent of pre-positioning varies across firms, however, and we hope to continue to both sign up new counterparties and encourage firms to increase further the quantity of pre-positioned collateral over time, he added.
Firms should not be stigmatised if they use the discount window facility, Fisher said, as the Bank only lends to banks it deems solvent.
Fisher did not address monetary policy in his speech, which is to be delivered to a conference of asset-liability managers taking place in London.
(Reporting by David Milliken; Editing by Hugh Lawson)