Section 3: Institutional risks materialise

Chart 3.1 Major UK banks’ and LCFIs’ credit default swap premia(a)(b) Sources: Markit Group Limited, Thomson Datastream, published accounts and Bank calculations. (a) Data to close of business on 20 October (b) Asset-weighted average five-year premia. (c) April 2008 Report.

Chart 3.2 UK GDP growth forecast dispersion and major UK banks’ credit default swap premia Sources: Consensus Economics Inc., Markit Group Limited, Thomson Datastream and Bank calculations. (a) Based on the standard deviation of forecasts of current and year-ahead GDP growth collected by Consensus Economics Inc. A value of one indicates average dispersion of forecasts between January 1998 and October (b) Monthly average of asset-weighted five-year CDS premia except for last estimate, which is the average to close of business on 20 October 2008.

Table 3.A Major central bank operational announcements since April 2008(a) Bank of EnglandFederal Reserve European Central Bank Co-ordinated central bank announcements(b) MayAnnounced that expanded Expanded size of Term Auction Expansion of agreements between three-month long-term repos Facility (TAF).Federal Reserve and European Central would be maintained in June and July.Bank. Extended collateral of Term Securities Lending Facility (TSLF). JulyIntroduced 84-day TAF.Announced that it would conduct operations under the 84-day TAF to Primary Dealer Credit Facility (PDCF) provide US dollars to European Central and TSLF extended to January Bank counterparties. Authorised the auction of options for Announced that supplementary primary dealers to borrow Treasury three-month longer-term refinancing securities from the TSLF. operations (LTROs) would be renewed in August and September. SeptemberAnnounced that expanded Expanded collateral of PDCF.Announced six-month LTROs would Expansion of agreements three-month long-term repos be renewed in October, and between Federal Reserve and would be maintained in September Expanded size and collateral of TSLF.three-month LTROs would be renewed European Central Bank. and October.in November and December. Announced provision of loans to banksEstablishment of swap agreements Announced long-term repo to finance purchase of high qualityConducted Special Term Refinancing between Federal Reserve and operations to be held weekly.asset-backed commercial paperOperation.Bank of England, subsequently expanded. from money market mutual funds. Extended drawdown periodBank of England and European Central for Special Liquidity SchemeBank, in conjunction with Federal Reserve, (SLS).announced operation to lend US dollars for one week over quarter end, subsequently extended to scheduled weekly operations. OctoberExtended collateral for one-week Announced payment of interest on Increased size of six-month Announced schedules for TAFs and US dollar repos and for three-month required and excess reserve balances.supplementary LTROs.Forward TAFs for auctions of US dollar long-term repos.liquidity during the fourth quarter. Increased size of TAFs.Announced reduction in corridor of Extended collateral of all standing facilities from 200 basis points European Central Bank and extended-collateral sterling Announced creation of the to 100 basis points around the Bank of England announced tenders of long-term repo operations, Commercial Paper Funding Facility.interest rate on the main refinancing US dollar funding at 7-day, 28-day, 84-day US dollar repo operations, and the operation.maturities at fixed interest rates for SLS to include bank-guaranteedfull allotment. Swap agreements debt under HM Government’s bank Introduced swap agreements withincreased to accommodate required level debt guarantee scheme.Swiss National Bank.of funding. Announced Operational Standing Facilities and a Discount Window Facility, which together replace existing Standing Facilities. Sources: Bank of England, European Central Bank and Federal Reserve. (a) Data to close of business on 20 October (b) Co-ordinated actions also involved on one or more occasions some or all of the Bank of Canada, Bank of Japan, Danmarks Nationalbank, Norges Bank, Reserve Bank of Australia, Sveriges Riksbank and Swiss National Bank.

Chart 3.3 Three-month interbank rates relative to expected policy rates(a)(b) Sources: Bloomberg and Bank calculations. (a) Spread of three-month Libor to three-month overnight indexed swap rates. (b) Data to close of business on 20 October (c) April 2008 Report. (d) Fannie Mae and Freddie Mac taken into conservatorship. (e) Lehman Brothers Holdings files for Chapter 11 bankruptcy protection.

Chart 3.4 Equity prices of distressed institutions(a) Sources: Bloomberg and Bank calculations. (a) Data to close of business on 20 October (b) Fannie Mae and Freddie Mac taken into conservatorship. (c) Lehman Brothers Holdings files for Chapter 11 bankruptcy protection. (d) Benelux, Icelandic and UK governments nationalise or take stakes in banks. (e) UK authorities announce comprehensive package of measures.

Chart 3.5 Capital positions of Fannie Mae and Freddie Mac Sources: Bloomberg and published accounts.

Chart 3.6 US securities’ houses exposures to structured credit as a proportion of total assets at end-2008 Q3(a) Sources: Published accounts and Bank calculations. (a) Includes exposures to leveraged loans and asset-backed securities where details disclosed by firms.

Chart 3.7 Major UK banks’ and LCFIs’ market capitalisation Sources: Bloomberg and Bank calculations.

Chart day US Treasury bill yield(a) Source: Global Financial Data. (a) Data to close of business on 20 October 2008.

Chart A Outstanding notional amounts of derivatives Source: BIS.

Chart B Gross market value and net credit exposures in OTC derivatives Source: BIS.

Chart 3.9 US money market mutual funds’ total assets under management(a) Sources: Bloomberg and Investment Company Institute. (a) Comprises US dollar assets of retail and institutional funds. (b) Lehman Brothers Holdings files for Chapter 11 bankruptcy protection. (c) US Treasury announces temporary guarantee programme for US money market mutual funds.

Chart 3.10 Maturity profile of US commercial paper issuance(a) Source: Board of Governors of the Federal Reserve System. (a) Data to close of business on 20 October 2008.