More detailed information on the Scheme can be found in the TFS Operating Procedures and the previous TFS Market Notice (published on 04 August 2016), both of which can be accessed here.
The Term Funding Scheme (TFS or the Scheme) is designed to reinforce the transmission of Bank Rate cuts to those interest rates actually faced by households and businesses by providing term funding to banks at rates close to Bank Rate.
In addition to its primary monetary policy objective, the TFS also provides participants with a cost effective source of funding in the form of central bank reserves to support additional lending to the real economy.
Further documentation for the TFS, including Terms and Conditions and Operating Procedures, is available via the Bank’s website.
Eligibility
Institutions eligible to participate in the TFS are banks and building societies that are participants in the Bank’s Sterling Monetary Framework (SMF) and signed up to the Discount Window Facility (DWF).
Eligibility and continued access to the TFS will be dependent upon a Participant and other members of its TFS Group acting, in the opinion of the Bank, in good faith and in a manner consistent with the objectives of the TFS.
Drawdowns
The TFS “Drawdown Period” ran from 19 September 2016 to 28 February 2018.
The TFS closed for Drawdowns on 28 February 2018 as envisaged when the Scheme was launched. The MPC may adjust the terms (borrowing allowance, pricing) and length of the Scheme should macroeconomic conditions warrant it.
Term of the transactions
The term of each transaction will be for 4 years from the date of drawdown.
Participants may terminate any transaction, in part or in full, before its maturity date, in accordance with the Operating Procedures.
Eligible collateral
Eligible collateral consists of all collateral eligible in the SMF: level A, B and C collateral sets (including loan pools). The Bank reserves the right to reject any security or loans offered for any reason at any time.
The procedures relating to collateral eligibility, delivery and maintenance in the TFS are the same as for the SMF, as described in the SMF Operating Procedures, which are available on the Bank’s website.
The Bank’s valuation of collateral will be binding. Haircuts will apply to collateral as set out in the SMF. Haircuts may be varied at any time at the Bank’s discretion.
Interest
The Bank charges interest on TFS transactions equal to Bank Rate plus a Scheme fee.
Interest is calculated daily based on Bank Rate and the outstanding drawings by Participants in a TFS Group. The interest will be allocated between Participants in a TFS Group in proportion to the Participants’ drawings.
The Scheme fee was determined at the end of the Reference Period, based on Net Lending over the Reference Period. For TFS Groups whose Net Lending over the Reference Period as a whole was positive, the fee is 0bp per annum. For Groups whose Net Lending over the Reference Period as a whole was negative, the fee increased linearly (to the nearest basis point) from 0bp per annum if lending was unchanged up to 25bp per annum if lending fell by 5%. If lending fell by more than 5%, the fee would be 25bp per annum. This fee applies daily to all drawings by Participants in a TFS Group for the duration of the drawings.
Interest payments
During the Drawdown Period, Participants accrued interest based on Bank Rate and an initial flat fee of 0bp per annum on their drawings, each calendar quarter in arrears. Any additional fee required on drawings during the Drawdown Period, including any fee for excess drawings, was charged as a lump sum after the end of the Drawdown Period.
Since the end of the Drawdown Period, interest payments, including any fee for excess drawings, are charged quarterly in arrears.
Published information
The Bank publishes the size of Participants’ outstanding drawings quarterly with a lag. Publication dates are available on the Bank’s website.
Details of aggregate TFS drawings are also published weekly on the Bank’s website.
Audit of lending data
In line with the TFS operating procedures, participants were required to audit their lending data following the closure of the drawdown window. These audits led to some data revisions but no firms were asked to repay their drawings as a result of the data revisions.
Lending data and borrowing allowance figures are now considered to be final.