Skip to main content
  • This website sets cookies on your device. To find out more about how we use cookies please refer to our Privacy and Cookie Policy. By continuing to use the site, we’ll assume that you are content for us to set these on your device.
  • Close
Home > News and Publications > Quarterly Bulletin 2013 Q4

Quarterly Bulletin 2013 Q4

20 December 2013

Contents of Quarterly Bulletin 2013 Q4

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.
Topical articles
SME forbearance and its implications for monetary and financial stability (81KB)
By MartinArrowsmith and MartinGriffiths of the Bank’s Prudential Regulation Authority, JeremyFranklin, EvanWohlmann and GarryYoung of the Bank’s Monetary Analysis Directorate and DavidGregory of the Bank’s Financial Stability Directorate.

This article presents the results of an investigation into the extent of loan forbearance in the SMEsector and its implications for productivity and financial system resilience. Around 6% of SME borrowers were estimated to be in receipt of some form of loan forbearance in March2013. This accounted for around 14% of the major five UKbanks’ exposure to this sector. SME forbearance appears to account for only a small proportion of the weakness in aggregate UKproductivity and also seems unlikely to threaten financial system resilience.
A short video explains what forbearance is and why it can matter for monetary and financial stability:
Bringing down the Great Wall? Global implications of capital account liberalisation in China (106KB)
By John Hooley of the Bank’s International Finance Division.
Capital account liberalisation in China and internationalisation of the renminbi would have a large impact on the global financial system. An illustrative thought experiment suggests China’s gross international investment position could increase from around 5% to 30% of world GDP by 2025. The UK financial system is likely to be particularly affected. The Bank is working with the People’s Bank of China to ensure a successful and stable development of renminbi activity in London.
Banknotes, local currencies and central bank objectives (391KB)
By Mona Naqvi and James Southgate of the Bank’s Notes Division.
A few towns and cities in the United Kingdom have set up local currency schemes to promote local sustainability. The schemes issue paper instruments with some similar design features to banknotes. This article explains how these instruments differ from banknotes. The size, structure and backing arrangements of existing schemes mean that local currencies are unlikely to pose a risk to the Bank’s monetary and financial stability objectives. Nonetheless, consumers should be aware that local currency instruments do not benefit from the same level of consumer protection as banknotes.
A short video explains some of the key topics covered in this article:
Banks’ disclosure and financial stability (110KB)
By Rhiannon Sowerbutts and Peter Zimmerman of the Bank’s Financial Stability Directorate and Ilknur Zer of the Board of Governors of the Federal Reserve System.
Inadequate public disclosure by banks contributed to the financial crisis. This is because investors, unable to judge the risks that banks are bearing, withdraw lending in times of systemic stress. This article presents quantitative indices which allow for the comparison of disclosure between banks and over time. Internationally, disclosure has improved since 2000, particularly around banks’ valuation methods and funding risk. However, more information alone is not sufficient to solve the problem. More needs to be done to ensure that the information provided is useful to investors, and that investors are incentivised to use this information. The ongoing reform agenda aims to address this.
By Christopher Hackworth, Amar Radia and Nyssa Roberts of the Bank’s Monetary Analysis Directorate.

Macroeconomic performance in the United Kingdom has been disappointing in recent years: for most of the post-crisis period, GDP growth has been unexpectedly weak, and inflation unexpectedly strong. That unexpected weakness in GDP reflects a combination of weaker growth in the United Kingdom’s trading partners, tighter domestic credit conditions and slower dissipation of uncertainty. Unanticipated rises in energy and other imported costs can broadly account for the surprising strength in inflation since mid-2010. Weak effective supply is likely to have counteracted the impact of weak demand on inflation.
By Philip Bunn and May Rostom of the Bank’s Structural Economic Analysis Division, Silvia Domit and Nicola Worrow of the Bank’s Monetary Assessment and Strategy Division and Laura Piscitelli of the Bank’s Market Sectors and Interlinkages Division. 
This article examines recent developments in household balance sheets using disaggregated data from an annual survey carried out by NMG Consulting on behalf of the Bank. The survey indicates that household debt levels remain well above historical averages, but are little changed since last year. While debt servicing costs were also broadly unchanged, a significant increase in interest rates at current incomes may increase financial pressure on households with a mortgage – but the extent to which this is the case will depend crucially on how much incomes pick up before any rise in rates. This issue is explored by considering a number of scenarios for interest rate rises based on survey responses and some simple assumptions that are set out in the article.
By Katie Farrant, Mika Inkinen, Magda Rutkowska and Konstantinos Theodoridis of the Bank’s Macro Financial Analysis Division.
Capital markets play an important role in financing UK companies. Since 2009, corporate bond issuance has been strong, and yet aggregate UKbusiness investment has remained weak. In part, this pattern of company behaviour can be explained by companies choosing to issue bonds in order to reduce other forms of debt, such as bank loans. But company-level data show that there is considerable heterogeneity in companies’ investment behaviour. Companies that use capital markets have increased their investment significantly since the trough in 2009. Their investment growth, however, fell in 2012, suggesting that other factors besides access to finance were also influencing companies’ investment decisions at the time.
Tiering in CHAPS (1.7MB)
By Kevin Finan of the Bank’s Market Services Division and Ana Lasaosa and Jamie Sunderland of the Bank’s Market Infrastructure Division.
In the United Kingdom, many banks access payment systems via relationships with other banks. This introduces risks to financial stability which can be reduced by increasing direct participation. The Bank has worked with the payments industry to increase direct participation in CHAPS, as part of its broader work to reduce systemic risk in the United Kingdom. As a consequence, by 2015 a number of banks that are systemically important to the CHAPS system will become direct participants. This is a structural change which will significantly reduce interbank exposures, and hence will enhance UK financial stability.
Recent economic and financial developments

Markets and operations (158KB)

This article reviews developments in financial markets between the 2013 Q3 Quarterly Bulletin and 29 November 2013, drawing on qualitative intelligence gathered by the Bank from across its network of contacts among financial market practitioners. The article also sets out usage of the Bank’s operations since the previous Bulletin.
There are also boxes on recently announced changes to the Bank’s approach to providing liquidity insurance to the banking system, progress towards a fully functioning market for additional Tier 1 capital, and a first assessment of the international impact of US rules on trading of standardised over-the-counter derivatives.


The foreign exchange and over-the-counter interest rate derivatives market in the United Kingdom (83KB)
By John Lowes of the Bank’s Data Statistics Division and Tsvetelina Nenova of the Bank’s Foreign Exchange Division.
In April this year, central banks and monetary authorities in 53countries, including the UnitedKingdom, conducted national surveys of turnover in foreign exchange (FX) markets and in over-the-counter (OTC) interest rate derivatives markets. These surveys have taken place every three years since 1986 and measure turnover for the whole of April. They are co-ordinated on a global basis by the Bank for International Settlements (BIS), with the aim of obtaining comprehensive and internationally consistent information on the size and structure of the corresponding global markets.
By Roger E A Farmer, Senior Houblon-Norman Fellow at the Bank and Distinguished Professor, UCLA.
This paper presents the text of the annual John Flemming Memorial Lecture, given at the Bank of England on 16October 2013. The views expressed are those of the author and do not represent those of the Bank or the Monetary Policy Committee.
Summaries of speeches and working papers
Bank of England speeches (42KB)
Top of Page