1. Central Bank Liquidity Management Techniques in crisis times
Bank of England (BOE)
Yonca Kumsar

2. Topics to cover : 1.Monetary Policy of BOE 2.Reserve Requirements
Interest Rate
Quantitative Easing
2.Reserve Requirements
3.Operational Standing Facilities
4.Balance Sheets of BOE

3. 1.Monetary Policy Operations
Monetary Policy Committee decides on Bank Rate
In March 2009 MPC announced it starts to inject money directly into the economy by purchasing assets, known as Quantitative Easing
Why ? In recession you cant lower interest rates below zero, then quantitative easing is used to support demand.
BOE reduced Bank Rate by %0.5 to %0.5 and announced £75 Billion Asset Purchase Programme
(5 March 2009)

4. Interest Rates
Bank Rate: interest rate which bank lends to financial institutions
SONIA: Sterling Overnight Interbank Average rate
The Bank seeks to meet the inflation target(%2) by setting Bank rate.
In crisis: Bank rate is lowered to prevent contraction in the economy.
BOE reduced bank rate by 0.5 to %0.5. (March 2009)

5. Quantitative Easing
In Jan2009, Asset Purchase Facility (APF) is authorised to buy high-quality assets
Purchase of assets are financed by the Bank creating money 
In 5 March, MPC is authorised to use the APF for monetary policy purpose
In crisis: BOE announced £75 Billion Asset Purchase Programe

7. 2.Reserve Requirements
voluntary reserve ratio system, with no minimum reserve requirement
reserves averaged over a monthly maintenance period during which they are remunerated at Bank Rate
How can we explain these changes in average cash reserve ratio across the entire United Kingdom banking system ? *
Country
1968
1978
1988
1998
2010
United Kingdom
20.5
15.9
5.0
3.1
43.1

8. Answer:
In 2010 it was very high, with a 43.1% average this reflects the impact of Quantitative Easing .
From to 1998 it has been declining for many years

9. 3.Operational Standing Facilities
Aim : to prevent money market rates moving away from Bank rate
Corridor is symmetric with the deposit rate of 25bps below Bank Rate and the lending rate 25bps above Bank Rate.
Banks are encouraged to transfer colleteral into the Bank
They have weekly intermeetings.

10. Symmetric Corridor Approach

11. In crisis times:
But , In March 2009 : deposit rate was set to zero and lending rate to 25bps above Bank rate.
Also , they enlarged their colleteral demand to be more productive.

12. 4.Balance Sheets of BOE
Why do Balance sheet percentages of annual nominal GDP increase after crisis times ?

13. Balance Sheet as % of GDP
It reflects an expansion of both the Bank’s liquidity
insurance operations,
and more recently the addition of asset
purchases as an operating objective of the Monetary Policy Committee.

14. Assets :

15. Liabilities:

16. In Crisis:
Dollar reverse repo operations increased , because Federal Reserve Bank of New York provided $ after Lehman Bankruptcy and in return BOE lended sterling
In case of long term need of liquidity long term reverse repos increased.
Loan to asset purchase facility : Quantitative easing

17. Leanness Indicator :
When AF- BN is zero , when Balance Sheet only displays MPI , than BS is lean
Indicator :1-(AF in assets+AF in liab –BN) /( 2* BS Length)
In crisis: BN remained almost same but since AF as FX and assets increased, leanness decreased.

18. BS pre and after crisis

19. Thank you!