Bank of England let off the hook by Serious Fraud Office over liquidity auctions during the financial crisis

Lucy White
Triggering Article 50 - City Of London
The BoE referred itself due to concerns it had favoured some financial institutions over others in the auctions (Source: Getty)

The Bank of England (BoE) has been let off the hook by the Serious Fraud Office (SFO) over liquidity auctions it held in the financial crisis.

Liquidity auctions are a way for banks to provide the rest of the banking system with extra cash, by effectively swapping its own highly liquid assets for a wider range of assets with good credit quality but lower liquidity.

The SFO brought in Lord Grabiner in 2014 to head the probe, after the BoE referred itself due to concerns it had favoured some financial institutions over others in the auctions.

Read more: Bank of England liquidity auctions under investigation by Serious Fraud Office

“After a thorough investigation, the SFO has concluded that there is no evidence of criminality in relation to this matter,” the investigator said in a statement.

The BoE declined to elaborate on why it had referred itself to the SFO, simply saying that it “became aware” of matters within the bank which prompted it to commission an independent investigation.

The results of that investigation in turn compelled the BoE to take the next step and turn itself in to the SFO.

“The investigation focused on the conduct and operation of certain of the bank’s liquidity auctions at the height of the financial crisis when a number of systemically-important UK financial institutions were under unprecedented stress,” said the BoE in a statement.

“The financial crisis exposed shortcomings in the Bank’s frameworks for providing liquidity insurance, operating procedures and governance arrangements.”

Liquidity auctions were particularly popular in 2007 and 2008 following the collapse of Northern Rock, when many other consumers began to fear their bank would go bust.

Read more: Northern Rock steps up law suit against UBS

Given the possibility that customers might rush to take out money from their accounts, banks needed extra liquidity to meet those liabilities.

However, the BoE added that it had learnt from its mistakes. “After the SFO’s decision to open an investigation, the bank moved quickly to establish whether there was any other potential misconduct in any other key market operations during the financial crisis,” it said.

“The review found no evidence of misconduct by any individual bank employee. The review resulted in a number of recommendations which the bank has now implemented.”

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