Bank of England to offer extra lending to banks around the time of the EU referendum

Chris Papadopoullos
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Politicians arrive in Downing Street
Mark Carney isn't taking any chances (Source: Getty)

The Bank of England today announced it will offer extra lending to banks in the weeks around the EU referendum to stave off the impact of uncertainty on the financial system.

Banks will be offered three additional so-called long-term repo operations. They involve swapping cash for eligible collateral, mostly government debt, which is swapped back at a later date. The Bank can also accept mortgage-backed debt and corporate debt.

The interest on the repos will be linked to the Bank's main policy rate. They will take place at auctions on the 14 June, 21 June and 28 June, and will last until 8 December.

"The Bank will continue to monitor market conditions carefully and keep its operations under review," it said.

The announcement comes as governor Mark Carney and Sir Jon Cunliffe, a deputy governor, prepare to be grilled by MPs tomorrow on the economic costs and benefits of EU membership.

The loans will be additional to the Bank's regular long-term repos which it conducts once per month. Its move to increase the frequency of the repo auctions from one to four in June is a precautionary measure – it is feasible that banks may not need to use the operations at all.

A similar approach was adopted during the Scottish independence referendum, but the Bank did not advertise the policy.

“Providing extra liquidity is always a wise course of action,” Michael Hewson, chief market analysts at CMC Markets, told City A.M.

“But I’m struggling to understand the rationale for them telegraphing the move.”

“It’s hard to escape the perception that this intervention is politically motivated, even if it isn’t.”

“A prudent central bank would take those certain precautions in any case.”