The Bank of England’s sterling liquidity facilities are at the heart of its mission — for example, the historical record suggests that the Bank has been providing sterling liquidity to the market for financial stability purposes since at least 1847, and probably longer. In recent years, and in part following a review commissioned by the Court of Directors (the Bank’s Board) in 2012, these liquidity facilities have been subject to a series of reforms. More generally, the wider Bank has sought ways to work more effectively together, in line with its ‘One Bank’ strategy.
Given the importance of the facilities to the Bank’s work, Court commissioned its Independent Evaluation Office to assess whether the various reforms in recent years were on track to achieve their aims.
The evaluation found positive evidence of progress across numerous aspects of sterling liquidity provision. Substantial progress has been made in opening up access to the Bank’s facilities. The Bank’s facilities have become cheaper and more flexible. In the main, firms have been receptive to the reforms, with the Bank’s facilities at least partly integrated into firms’ own liquidity planning. And the institution has made tangible progress of working together well as ‘One Bank’. This is evidenced by, among other things, the comprehensive package of planning for potential liquidity stress around the EU referendum, where the Bank’s approach helped firms plan with confidence. Together with supportive communications immediately after the referendum, this may have tempered the likelihood of a liquidity stress materialising.
The evaluation has uncovered opportunities where the Bank could refine and update its approach. The IEO’s recommendations fall into three main themes: future-proofing the facilities for stress situations; operating the SMF as ‘One Bank’; and communicating the Bank’s risk management approach more effectively.