Minutes
Time: 2pm – 3.30pm 8 June 2021 | Location: Teleconference
Item 1 – Bank of England welcome
The Chair thanked members of the Committee for their time and welcomed Chirag Patel from Rabobank to the Committee.
The Chair also informed the Committee that Elissa Holmes (LCH) was taking a career break and therefore had stepped down from the Committee. Tony Baldwin, also from LCH, would replace her; he would be joining from the September meeting onwards.
The Committee had no comments to raise on the minutes from March’s meeting which had been posted on the Bank’s website.
Item 2 – Diversity & Inclusion – MVP event feedback
The Bank provided a brief summary of the Meeting Varied People (MVP) event that had taken place on 21st April 2021 and the feedback it had received.
The event had included a speech from the Governor that set out how important Diversity & Inclusion was to the Bank, both internally and in the wider financial markets. The Bank needed to represent the make-up of the people of the United Kingdom and was working hard to achieve this. In particular, through the event, the Bank was hoping to extend the range of their contacts and interaction with markets to a more diverse and inclusive range of contacts. The benefit of diversity of skills and thought in financial market trading teams was highlighted by all who spoke.
The break-out rooms that followed the main discussions gave the Bank the opportunity to meet many new contacts from those that expressed interest in assisting the Bank’s market intelligence gathering and these would be followed up in coming weeks. And a group of future potential candidates for opportunities on the Bank’s committees was also identified.
It was felt that all feedback had been very positive; the Bank noted it would communicate further on any future relevant initiative when appropriate.
Item 3 – Discussion on market conditions
The Bank introduced the discussion on market conditions. It was noted that sterling overnight repo at the March quarter-end richened earlier, and by a larger amount, when compared to recent quarter ends. The attraction of the cross currency basis meant that in particular more dollars were being swapped into sterling, increasing further the amount of cash looking to be placed into the repo market. The timing of the Easter weekend, and the quarter-end reduction of dealer balance sheets were also attributed as drivers.
The Committee discussed the fact that overnight volumes in the sterling unsecured market continued to sit below their 2020 highs, despite the abundance of liquidity across sterling markets as a whole. Reasons cited for this were sustained decreases in sterling MMF AUMs and increases in their weighted average maturities (WAMs), which together meant a lower aggregate placing of cash into overnight deposits. In addition, one member noted that the observed trend could be related to purchases of 6 month or longer duration assets late in 2020 to span year end. That would, presumably, unwind were the hypothesis to be proven correct.
It was noted that in broader markets there had been some reaction to emerging inflation fears, with a high US CPI print driving global risk-off movements most recently. Equity and commodity prices had also begun to ease off after a sustained rally since the end of March. Members discussed the suggestion that inflation was likely to be temporary as restrictions eased; but that the main focus for the UK recovery would be on unemployment data following the end of the furlough scheme.
Item 4 – Have the dynamics of the markets changed as a result of the pandemic and other recent events?
Members reflected on longer-term trends that had emerged over the last eighteen months, and changes to market dynamics occurring due to or alongside the Covid pandemic.
It was agreed that, relative to pre-Covid, the amount of liquidity in the system as a result of central bank action had pushed down on yields and increased the amount of cash in overnight markets. The acute uncertainty due to Covid had also led to higher market volatility and an increase in banks’ retail deposits levels, given reduced consumer spending and reduced bank lending demand, leaving banks with copious liquidity. Members discussed whether a potential future risk was the unwinding of QE coinciding with a decrease of these retail deposits as and when more normal activity resumed. Some also suggested that if excess savings in the retail sector did not flow to the corporate sector eventually, then this could frustrate business investment.
Regarding the unsecured deposit market, the Committee discussed changes in banks’ participation as a result of Brexit, and noted that some banks had redirected some of their client activity to their European offices. Members believed that the majority of desk moves to Europe had been completed.
The Committee discussed the effects of TFSME on sterling markets, and noted that – not surprisingly especially given high retail deposit levels - it had been accompanied by a reduction in secured issuance. Some expected a small pick-up in TFSME usage towards the end of the drawdown window, potentially delaying UK banks’ resumption of secured issuance until 2024.
Item 5 – Working from home / hybrid models
The Committee discussed firms’ future plans for working from the office and from home, and whether this was likely to have any impact on market functioning. Members described a wide range of approaches being taken by respective companies, ranging from very flexible hybrid models to expectations of a fuller return to offices. No conclusion was drawn about whether the continuance of hybrid models would impact market activity.
Item 6 – Update from UK Money Market Code Sub-Committee
The Sub-Committee Chair provided an update on the recent UKMMC meeting discussions, and informed the Committee that the launch of the updated UK Money Markets Code had been very successful, with a high number of views of the Code section on the Bank’s website.
The Sub-Committee Chair also informed the Committee that he was stepping down as Chair of the UK Money Markets Code Sub-Committee now that the Code update was complete, but that he would remain as a member of both the MMC and the UKMMC.
The MMC Chair thanked him for all his hard work and input over the past three years, and announced that going forward the Code Sub-Committee would be chaired by Mick Chadwick from Aviva, and Glenn Handley from HSBC, who were long-standing valuable members of the Money Markets Committee and the UK Money Markets Code Sub-Committee respectively.
Item 7 – Update from Securities Lending Committee (SLC)
The Chair of the Securities Lending Committee (SLC) updated the Committee on what had been discussed in their April meeting. The SLC continue to promote diversity and inclusion, have asked members to bring diverse participants to their meetings.
The SLC had also discussed in their previous meeting the impact of Gamestop and Archegos. A couple of lessons were noted: firstly, the danger of crowded shorts amidst the increased power of retail investors; and secondly, the capacity for short selling to exacerbate concentrated idiosyncratic risks. It was agreed that potential solutions to these risks should be discussed in the near future.
Item 8 - AOB
The Chair confirmed that the next MMC was scheduled for 7 September at 2pm, to be held in person if Government guidelines permitted.
The Chair encouraged members to provide a response to a Discussion Paper on New Forms of Digital Money that the Bank had recently published, given the relevance to sterling money markets.
The Chair also requested that Committee members email suggested forward agenda items for future MMC meetings to the Secretariat.
Committee attendees
Gordon Lowson – Aberdeen Standard
Stephen Grainger – Aldermore
James Winterton – Association of Corporate Treasurers
Mick Chadwick – Aviva Investors
Michael Manna – Barclays Bank UK
Emma Cooper – BlackRock
Ina Budh-Raja – BNY Mellon
Romain Dumas – Credit Suisse
Inna Shaykevich – Goldman Sachs
Vicky Worsfold – Guildford Borough Council
James Murphy – HSBC
Chris Brown – Insight Investment
Olivia Maguire – J.P. Morgan Asset Management
Ben Challice – J.P. Morgan
Peter Left – Lloyds
Nina Moylett – M&G
Robert Thurlow – Mizuho
Rachel Lane – NatWest Bank
Nic Erevik – Newcastle Building Society
Chirag Patel – Rabobank
Alan Williams (alternate) – Santander UK
Romain Sinclair – Société Générale
Lynda Heywood – Tesco PLC
John Argent – Tradition
Jessica Pulay – DMO (Observer)
Jo Whelan – DMO (Observer)
Alan Barnes – FCA (Observer)
Bank of England
Rhys Phillips (Chair)
Jon Pyzer
Tom Jennings
Rebecca Jones
David Glanville
Apologies
Andrew Hauser – Bank of England
Tony Baldwin – LCH
Paul Barnes – Santander UK