By Christopher Jackson and Mathew Sim of the Bank’s Sterling Markets Division.
The sterling overnight money market plays an important role in the implementation of monetary policy. This article examines developments in this market since the peak of the financial crisis. Developments over this period include a fall in unsecured turnover and increasing use of secured transactions in overnight money markets. These trends have been driven by a number of factors, including perceptions of bank credit and liquidity risk, developments in the Bank’s operational framework, liquidity regulation and changes to banks’ business models. While some of these developments could be expected to unwind, other factors, such as the impact of new international liquidity regulation, are likely to persist in the longer term.