BOE to Offer Extra Liquidity to Banks Around EU Referendum

Updated on
  • U.K. central bank announces three additional repo operations
  • Governor Mark Carney due to speak on `Brexit' on Tuesday

The Bank of England said it will offer extra liquidity to the financial system around the U.K.’s European Union referendum in order to improve the availability of funds to banks.

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The central bank will offer three additional indexed long-term repo operations in the weeks around the vote scheduled for June 23, taking the total number that month to four from the usual one, it said in a statement published on its website on Monday.

The move is a precautionary measure to help ensure the continued smooth functioning of sterling markets and is not in response to specific concerns about liquidity stress around the referendum, according to a person familiar with the situation, who asked not to be named because deliberations on the matter are confidential.

“It seems as though the BOE is erring on the side of caution,” said Orlando Green, a fixed-income strategist at Credit Agricole SA’s corporate and investment-banking unit in London. “There will likely be a significant level of volatility due to the voyage into the unknown if there is an ‘out’ vote. Hence the BOE will want to offer additional support for banks.”

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With Bank of England Governor Mark Carney due to testify at Parliament’s Treasury Committee on Tuesday on the economic and financial costs and benefits of EU membership, the announcement is an early insight into the central bank’s contingency planning. While the BOE didn’t announce extra liquidity operations before Scotland’s independence referendum in September 2014, it later disclosed emergency plans to pump money into the financial system in the event of a breakup of the U.K.

“The bank will continue to monitor market conditions carefully and keep its operations under review,” the central bank said on Monday. The BOE “stands ready to take additional action if necessary.”

The extra operations will be held on June 14, June 21 and June 28, and will be in addition to BOE’s regular monthly ILTR operations. The central bank will continue to offer liquidity insurance via its other facilities throughout this period, it said.

“It is clear that the bank does not want to be accused of being asleep at the wheel and are setting out a backstop plan to ensure banks have ample liquidity in the event that it is required,” said Jason Simpson, a strategist at Societe Generale SA in London.