Bank Demand at BOE Liquidity Auction Plunges Before Brexit Vote

  • BOE allots 370 million pounds in second extra ILTR operation
  • Final liquidity operation before Thursday’s EU referendum

The Brexit Debate: What Happens if the U.K. Leaves the EU

Financial institutions’ demand for spare cash dropped at the Bank of England’s second offering of extra liquidity, which was made available to assure sufficient funding around Britain’s referendum on European Union membership.

Banks sought just 370 million pounds ($546 million) on Tuesday, compared with 2.46 billion pounds at the previous extra indexed long-term repo operation on June 14, according to the central bank. This is the final operation before Thursday’s vote, with another to be held on June 28. The BOE is holding four auctions this month -- offering funds in exchange for collateral -- instead of the usual one.

Two days before the vote and polls have shown the campaign is swinging back in favor of “Remain.” Traders have reduced bets of future market volatility and the pound has risen to the highest level against the dollar since January.

The International Monetary Fund warned last week that Brexit could cause a potential credit squeeze if liquidity markets dry up, which could deter spending and investment. BOE Governor Mark Carney increased the number of liquidity operations to avoid markets drying up. June’s take up at LTRO’s now amounts to 6.08 billion pounds. The average for the six-month operations between December 2015 and May 2016 was 3 billion pounds.

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