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Home > News and Publications > Quarterly Bulletin 2013 Q1

Quarterly Bulletin 2013 Q1

​​Contents of Quarterly Bulletin 2013 Q1

Each article is available as a separate pdf file;  click on the appropriate title to access the relevant file.  Alternatively you may download the complete issue.
Recent economic and financial developments
Markets and operations
This article reviews developments in financial markets, including the Bank’s official operations, between the 2012 Q4 Quarterly Bulletin and 22 February 2013.  The article also summarises market intelligence on selected topical issues relating to market functioning.  This edition focuses on a prospective new tool for reducing counterparty credit risk exposures in over-the-counter (OTC) derivatives.
Research and analysis
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or members of the MPC, FPC or the PRA Board.
Changes to the Bank of England 
By Emma Murphy of the Bank’s Macroprudential Strategy Division and Stephen Senior of the Bank’s PRA Transition Unit.
The Bank of England is currently experiencing its most important institutional and functional changes in a generation.  Failings in pre-crisis arrangements have prompted the Government to introduce wholesale changes to the UK regulatory landscape which come into force in April 2013.  This regulatory reform has resulted in the Bank gaining significant new responsibilities, including for:  microprudential regulation of insurers, deposit-takers and major investment firms, through the creation of the Prudential Regulation Authority;  macroprudential regulation of the financial system as a whole, through the creation of the Financial Policy Committee;  and supervision of some critical post-trade financial market infrastructure providers.  This article summarises the main changes to the Bank arising from these reforms, including those already put in place in anticipation of the reforms, as well as the new governance arrangements that are being introduced, as part of the Bank’s accountability to Parliament and the public.
The profile of cash transfers between the Asset Purchase Facility and Her Majesty’s Treasury
By Nick McLaren and Tom Smith of the Bank’s Macro Financial Analysis Division.
In November 2012, a process for regular cash transfers between the Bank of England’s Asset Purchase Facility Fund Limited (APF) and Her Majesty’s Treasury (HMT) was established.  The size and timing of these transfers depends on a number of uncertain factors, including the future path of Bank Rate, and the price at which the assets held by the APF are ultimately sold.  This article uses a spreadsheet-based framework, which has also been made available on the Bank’s website, to show how the size and timing of the transfers varies depending on the assumptions made about these uncertain factors.  While the initial transfers are from the APF to HMT, it is likely they will be offset by payments in the opposite direction in the future.  The ultimate net amount that will be transferred is uncertain, and a wide range of outcomes is possible.
This updated version of the spreadsheet incorporates the Asset Purchase Facility gilt portfolio and market yield curves as of 31 August 2016 (the original spreadsheet included data as of 28 February 2013). It takes no account of Asset Purchase Facility operations which have been announced but had not been carried out by 31 August 2016.  The original version should be used to replicate the results presented in the Quarterly Bulletin article.

Illustrative scenarios for the profile of payments between the APF and HMT - 29 September 2017 update
This updated version of the spreadsheet incorporates the Asset Purchase Facility gilt and corporate bond portfolio and market yield curves as of 29 September 2017. It takes no account of Asset Purchase Facility operations carried out after 29 September 2017.

Following the 2016 amendments to the APF, the interactive calculator became out of date. This spreadsheet shows a small number of illustrative scenarios for future cash transfers using an internal Bank tool and further scenarios can be requested as described in the spreadsheet. The scenarios contained in the spreadsheet do not represent the views of the Bank of England or the Bank's Monetary Policy Committee on the future path of Bank Rate, the APF's portfolio or other parameters used.

These spreadsheets are designed to show how the broad profile of the cash transfers is affected by a small number of key variables over the medium term, under some simplifying assumptions. They should not be used to form precise forecasts of the size of individual cash transfers.
Private equity and financial stability 
By David Gregory of the Bank’s Markets, Sectors and Interlinkages Division.
In the mid-2000s, there was a dramatic increase in acquisitions of UK companies by private equity funds.  The leverage on these buyouts, especially the larger ones, was high.  The resulting increase in indebtedness makes those companies more susceptible to default, exposing their lenders to potential losses.  This risk is compounded by the need for companies to refinance a cluster of buyout debt maturing over the next few years in an environment of much tighter credit conditions.  From a macroprudential policy perspective it will be important to monitor the use of debt in acquisitions in future episodes of exuberance.  But there is also a potential role for private equity to play in promoting recovery in a downswing, in particular at the current juncture, by restructuring companies in difficulty.
Commercial property and financial stability 
By James Benford and Oliver Burrows of the Bank’s Financial Stability Directorate.
Commercial property played a key role in the recent financial crisis in the United Kingdom.  A rapid build-up of debt tied to commercial property investments pre-crisis supported a boom in prices.  The consequent bust led to a sharp rise in non-performing loans.  This episode has many precedents in the United Kingdom and parallels across countries.  The structure of the commercial property market, and in particular the role of leveraged investors with significant maturity mismatches on their balance sheets, is important in understanding the market’s dynamics and the risks it can pose.  The new Financial Policy Committee will be alert to these risks and deploy tools to counteract them where necessary to protect financial stability.
By Jon Relleen of the Bank’s Greater London Agency and David Copple, Matthew Corder and Nicholas Fawcett of the Bank’s Structural Economic Analysis Division.
The Bank’s Agents collect economic intelligence from the business community around the United Kingdom, enriching the range of information available to the Monetary Policy Committee (MPC).  The intelligence is largely qualitative, but Agents also make quantitative judgements in the form of scores.  The Bank has published Agents’ macroeconomic scores each month since 2006.  In addition, since 2007, Agents have assigned ‘company visit scores’ based on information gathered from their confidential meetings with individual UK firms.  This internal data set covers a broad cross-section of UK companies and has become helpful to the MPC when considering business conditions and particularly for considering differences across companies.  The scores have been used recently to try to understand better trends both in productivity and in the level of spare capacity within firms, on which there is a paucity of alternative data sources.
By Venetia Bell, Nick Butt and James Talbot of the Bank’s Monetary Assessment and Strategy Division.
In order to improve understanding of the role of bank liabilities in driving credit and monetary conditions, the Bank of England began conducting a formal Bank Liabilities Survey last year.  This survey is intended to supplement the data collected on the asset side of bank balance sheets by the Bank of England’s quarterly survey of credit conditions, which was introduced in 2007.  The first results of the Bank Liabilities Survey will be published on 26 March.  This article introduces the survey.
On 11 December, the Bank of England and the Centre for Economic Policy Research hosted the ninth Monetary Policy Roundtable.  These events provide a forum for economists to discuss key issues relevant to monetary policy in the United Kingdom.  As with previous Roundtable discussions, participants included a range of economists from private sector financial institutions, academia, public sector bodies and industry associations.  There were two discussion topics:  prospects for the UK housing market, and how important a role it can play in the recovery;  and companies’ pricing behaviours and the persistence of inflation.


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