In January 2009, the Chancellor of the Exchequer authorised the Bank to set up an Asset Purchase Facility (APF) to buy high-quality assets financed by the issuance of Treasury Bills. The aim of the Facility was to improve liquidity in credit markets. The Chancellor also announced that the APF provided an additional tool that the Monetary Policy Committee (MPC) could use for monetary policy purposes. When the APF is used for monetary policy purposes, purchases of assets are financed by the Bank creating money, rather than by issuance of Treasury Bills. Following an exchange of letters published on 5 March, the Chancellor authorised the MPC to use the APF for monetary policy purposes.
Purchases of assets will be undertaken by a subsidiary of the Bank - the Bank of England Asset Purchase Facility Fund. An indemnity is provided by HM Government to cover any losses arising from the Facility. The APF will be able to purchase UK government securities (gilts) in the secondary market and high-quality private sector assets, including commercial paper and corporate bonds.
The Bank's Accountability for Asset Purchases
The Monetary Policy Committee is accountable for its decisions on asset purchases in the same way that it is for its decisions on Bank Rate. Those decisions and the minutes relating to them will be published in the usual way a fortnight after the Committee meets. The Committee will continue to explain its monetary policy decisions through the Inflation Report and in its evidence to the House of Commons' Treasury Committee. The Bank will also publish a quarterly report giving details of the asset purchases that have been undertaken.
Letters between Governor and Chancellor on the Asset Purchase Programme can be found below: