1. The Bank of England is pleased with banks’ liquidity buffers – it has pushed banks to make sure they can survive market strains.
2. The authorities had been concerned banks would tap up the Bank of England’s liquidity facilities instead of getting liquidity in the market, so they made it expensive to access the discount window.
3. But now banks have big buffers they will not need to tap the Bank of England as often for liquidity support, so the Bank has loosened its access criteria.
4. Banks can offer a wider range of collateral in exchange for liquidity in the monthly long-term repo auctions. That means more specialist lenders can get involved.
5. The repos will run for six months, up from three.
6. However the banks will still have to be solvent – the setup is only there for sound banks suffering liquidity problems.
7. The Bank of England will not disclose the discount window’s use for five quarters – up from three months now, allowing more time before markets know about it.
8. Next year the Bank will look at allowing non-banks like brokers access the liquidity as they are also important to stability.