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Another Currency Runs Out: BOE Introduces "Collateral Term Repo Facility" To Deal With Sterling "Shortages"

Tyler Durden's picture




 

When yet another central bank, in this case the BOE, proactively uses the word "shock" in relation to funding deficiency (in this case the GBP) if even with the phrases "contingency" and "there is currently no shortage" a brief week after the global central bank cartel did the same to assure the world of USD funding availability, it may be time to wonder i) just how bad is the global FX crunch in any currency (EUR most certainly included - see near record ECB deposit facility usage), ii) just how broken is the shadow banking system - as a reminder with Lehman it was money markets (a major component of shadow liquidity), now it is repo (smaller, but still critical component of shadow banking) that is failing and iii) when will this crisis escalate to the next logical step?

From the BOE:

Introduction of the Extended Collateral Term Repo Facility

In light of the continuing exceptional stresses in financial markets, the Bank of England is today announcing the introduction of a new contingency liquidity facility, the Extended Collateral Term Repo (ECTR) Facility. This Facility is designed to mitigate risks to financial stability arising from a market-wide shortage of short-term sterling liquidity. There is currently no shortage of short-term sterling liquidity in the market. But should that position change, the new Facility gives the Bank additional flexibility to offer sterling liquidity in an auction format against the widest range of collateral. The introduction of the ECTR Facility underlines the Bank’s commitment to take appropriate measures to maintain UK monetary and financial stability.

The ECTR Facility will form part of the Sterling Monetary Framework and is reflected in an update to the Bank’s “Red Book”. In conjunction with the Indexed Long-Term Repo (ILTR) operations, and the permanent availability of the Discount Window Facility (DWF) for bilateral transactions, the ECTR Facility will give the Bank the ability to ensure that the banking sector has a sufficient access to sterling liquidity to mitigate risks arising from unexpected shocks.

Operations under the Facility will be announced at the discretion of the Bank to respond to actual or prospective market-wide stress. The operations would offer sterling for 30 days against collateral pre-positioned for use in the Bank’s Discount Window Facility (DWF). All firms registered for access to the Bank’s DWF would be eligible for ECTR operations. The size of any ECTR operation would be announced the day prior to the operation. Further operational details are available in the accompanying Market Notice.

 

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Tue, 12/06/2011 - 12:59 | 1951200 SheepDog-One
SheepDog-One's picture

Well Central Bankster cabal, YOU ran it all into the iceberg on purpose, so now whats your next move?

Tue, 12/06/2011 - 13:01 | 1951207 LeBalance
LeBalance's picture

"the boat was run by remote control, we are back on the mainland, have fun SD1."

signed: Squidly.

Tue, 12/06/2011 - 13:03 | 1951220 SheepDog-One
SheepDog-One's picture

Well unfortunately THEY are the ones out on the boat thats now sinking, not me!

Tue, 12/06/2011 - 13:06 | 1951237 falak pema
falak pema's picture

London bridge, london bridge...

Tue, 12/06/2011 - 13:17 | 1951272 Ahmeexnal
Ahmeexnal's picture

I'm off to the coinshop!

Tue, 12/06/2011 - 13:19 | 1951277 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Good call!  Gold just hit support. 

We will need to see it test $1705 to confirm.

Tue, 12/06/2011 - 13:30 | 1951342 bernorange
bernorange's picture

The rules of rock, paper, scissors are going to get a test in the near future.  Paper isn't going to cover rock (metal/ore) for long.

www.pmbug.com

Tue, 12/06/2011 - 13:43 | 1951409 redpill
Tue, 12/06/2011 - 15:15 | 1951905 sqz
sqz's picture

You should see some of the crap the BoE would accept with that collateral facility.

Normal: http://www.bankofengland.co.uk/markets/money/publications/narrow_omo_col...

Crap: http://www.bankofengland.co.uk/markets/money/publications/dwf_collateral...

In Normal bucket:

Sovereign and central bank debt (including associated strips) of UK (other than HMG Treasury bills and gilts), Canada, France, Germany, the Netherlands and the United States issued in either the domestic currency or in sterling, euro or US dollar.

In Crap bucket: any piece of paper, including "un-listed", except synthetics.

It's like central banks are swallowing markets whole or becoming the ultimate CCP... Python swallowing PIGS literally except that meal is rank!

On the one hand, moves like these in isolation are probably a good thing to avoid concentration risk in sovereigns (which are clearly not riskless).

On the other hand, moves like these are just going to be used as a crazy excuse to pump liquidity into the current system instead of allowing it to deleverage and restructure for sustainability. That liquidity has to go somewhere in the end and the system is currently set up for it to flow fast and hard into anything that looks even remotely tempting, typically some inefficient consumer durable or investment-draining, bubble-blowing financial assets.

Tue, 12/06/2011 - 16:14 | 1952289 Urban Redneck
Urban Redneck's picture

"against the widest range of collateral" is key- Bear, Lehman, MF, et al. their balance sheet shit didn't stink any worse than anyone else's.  They are ALL bankrupt and dead, the others are just the walking dead (bankrupt with a banking license) so when the shadow banking system counterparties or clearinghouses hike collateral or margin requirements on certain balance sheet instruments the Too Big Too Die can swap shit for fiat with the CB, and in the process postpone their day of reckoning.  It's probably rather hard to deleverage after you're already bankrupt...  The question is which TBTF card carrying member of the members-only DWF club is weak hand prompting the CB move and will the other hyenas move in for a kill or quick buck at tax-payer expense?

 

 

Tue, 12/06/2011 - 13:18 | 1951273 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Cameron's pants are falling down....

Tue, 12/06/2011 - 13:24 | 1951309 green888
green888's picture

the problem with lifeboats is that when they are full, do you stop to pick up more, imperilling everyone already on board, or do you sail on by ?

Tue, 12/06/2011 - 13:09 | 1951236 Manthong
Manthong's picture

When are people going to realize that in central banking terms the word "Facility" really describes a FANTASY. 

Or is the BOE going to go down to the basement vault, pull out a pallet of pounds sterling (hmm.. sterling..) and roll it up to the teller window to dispense to needy banks.

Tue, 12/06/2011 - 13:02 | 1951217 AngryGerman
AngryGerman's picture

"you play the violin until the ship has sunk.

we throw some small crippled children out of the lifeboats and take their places!

thanks for asking, your friendly neighborhood bankster."

Tue, 12/06/2011 - 12:59 | 1951201 LawsofPhysics
LawsofPhysics's picture

Someone is going to take a "pounding" on this.

Tue, 12/06/2011 - 13:01 | 1951206 EscapeKey
EscapeKey's picture

Some people just don't know when to quid.

Tue, 12/06/2011 - 13:02 | 1951216 LeBalance
LeBalance's picture

something wicked is sterling in the Sidhe of London.

Tue, 12/06/2011 - 13:09 | 1951243 TheFourthStooge-ing
TheFourthStooge-ing's picture

Before the day is out, Bernanke will be shilling for the ECTR.

 

Tue, 12/06/2011 - 13:18 | 1951278 The Swedish Chef
The Swedish Chef's picture


Some people just don't know when to squid.

Tue, 12/06/2011 - 13:36 | 1951366 Ghordius
Ghordius's picture

LOL

------

Good timing, BoE. You'll need soon all cool acronyms, probably so from January on, when the new "speculation target" will be presented:

"The Isle With 1'000% Total Debt" - soon in a theather near you...

Tue, 12/06/2011 - 13:09 | 1951247 CPL
CPL's picture

Considering that the Pound Sterling doesn't have sterling silver backing it....it deserves everything coming to it.

 

The queen is not pleased I suppose, although with squid running the currency into the ditch to force the UK under the EU umbrella, I wonder how long it will take the queen to understand that she's not as rich as she once thought she was.

Tue, 12/06/2011 - 14:14 | 1951613 hollowbody
hollowbody's picture

The Queen doesn't and needn't give a shit about any of it (at least, not in the immediate future)....under English law EVERYONE only takes title to 'their' LAND through HER. That's right, EVERYONE. In addition to that, she is almost certainly the largest owner of quality farmland in actual possession in the UK.

http://www.whoownstheworld.com/about-the-book/largest-landowner/

To back those rights up, something which her 'family' has been able to achieve for quite some time now, she is titular head of a government which has the FOURTH HIGHEST military spending in THE WORLD, every member of which swears alligience to HER and NOT the government, and which as the events in Northern Ireland prove, baulks not at murdering its own 'subjects' where rights to large parts of it are challenged.....

Tue, 12/06/2011 - 18:43 | 1952923 Ghordius
Ghordius's picture

Don't forget: a nice chunk of NY belongs to her, too.

Tue, 12/06/2011 - 13:00 | 1951202 gojam
gojam's picture
Preparing for bank run.
Tue, 12/06/2011 - 13:03 | 1951218 Everybodys All ...
Everybodys All American's picture

Wouldn't it be logical to assume that everyone is hoarding cash in Europe leaving the banks under a liquidity crunch? Don't tell anyone.

Tue, 12/06/2011 - 13:07 | 1951239 gojam
gojam's picture

Measures BofE have taken to increase liquidity.

QE, £275 billion has been created over the last 3 years. The BofE buys gilts on the secondary market from UK banks. This is basically money laundering and it explains why UK borrowing appears to have gone up this year. They are borrowing the money they themselves created with the QE. It's a zero sum in the end for the Government but it does have the side effect of providing liquidity to UK banks.

Credit Easing, at the PBR Osborne announced up to £40 billion of Credit Easing. This money guarentees loans made to UK companies so that in the event that banks need their money back quickly the Government will effectively buy the loans off the banks again this provides liquidity to UK banks while protecting UK companies.

Extended Collateral Term Repo (ECTR), " This Facility is designed to mitigate risks to financial stability arising from a market-wide shortage of short-term sterling liquidity." in other words it is designed to provide quick liquidity to banks in the event of runs on UK banks.

Overall it's a fairly robust contingency on the part of the UK but it's pretty obvious what they fear is the likely outcome and today's announcement of the ECTR facility so clearly telegraphs that fear that they wouldn't have done it unless they thought the threat was near and imminent.

It's not enough to solve the problem but it should be enough to stop the UK descending into chaos, banks, business, deposits, and withdrawals appear to have been covered.

Tue, 12/06/2011 - 13:11 | 1951252 CPL
CPL's picture

I agree on the bank run, but it might be the same case as Greece and Italy, the bank run process involves the following.

 

  • Run to bank
  • Take money out
  • Turn money into PM's.

No clue why they are attempting to print liquidity into the system when the outcome has been to dump fiat and pick up physical cash (gold/silver).

Tue, 12/06/2011 - 13:37 | 1951261 gojam
gojam's picture

I expect the UK would hope to just keep things running normally for as long as possible. If it comes to it the Eurozone will be chaos.

The average person will be happy as long as the money comes out of the machine. Businesses will be happy if their debts aren't called.

This facility is for Sterling only so it's likely to be a domestic contingency.

Tue, 12/06/2011 - 13:04 | 1951209 hedgeless_horseman
hedgeless_horseman's picture

 

 

...the ability to ensure that the banking sector has a sufficient access to sterling liquidity

NEED POUNDS, DOLLARS, OR EUROS? 

CALL (020) ROTH-CHILD

LOAN OFFICERS ARE WAITING TO TAKE YOUR CALL.

Tue, 12/06/2011 - 13:04 | 1951228 dick cheneys ghost
dick cheneys ghost's picture

Thats Funny...

Tue, 12/06/2011 - 13:02 | 1951210 valley chick
valley chick's picture

you got to be damn kidding me!  Just call it the Extended Facility for the Fricking World!  There ...that took care of it.

Tue, 12/06/2011 - 13:04 | 1951224 LeBalance
LeBalance's picture

we are from Uranus and we're here to help.

Tue, 12/06/2011 - 13:16 | 1951270 sabra1
sabra1's picture

aaah! put a plug in it!

Tue, 12/06/2011 - 13:23 | 1951307 Liquid Courage
Liquid Courage's picture

No, no, no! Shocking how inept the Brits seem to be when it comes to devising proper acronyms. CTRF! WTF? Can't even pronounce that. Acronyms are important tools in the propagandist tool kit, and no-one gets this better than the Americans. A good acronym must be pronouncable, evocative, at least a bit witty and, hopefully, comforting.

Also, fun to mess with. OK the floor is open for suggestions for naming the ultimate Financial Action Relief Trust.

How about: VAst Monolithic Ponzi Investment REsource (VAMPIRE) and then of course: Sequential Knock-out World Integration Deployment (SKWID)

Tue, 12/06/2011 - 13:04 | 1951229 YesWeKahn
YesWeKahn's picture

That's why people call it a currency, not "money".

Tue, 12/06/2011 - 13:05 | 1951232 tony bonn
tony bonn's picture

when a central banker's lips are moving, he is lying....there is a shortage...

"to offer sterling liquidity in an auction format against the widest range of collateral. "

i would like to collateralize my underwear, a used buick, and a pile of postage stamps.....there, that should do it...

Tue, 12/06/2011 - 13:05 | 1951233 Financial_Guard...
Financial_Guardian_Angel's picture

When yet another central bank, in this case the BOE, proactively uses the word "shock" in relation to funding deficiency (in this case the GBP) if even with the phrases "contingency" and "there is currently no shortage" a brief week after the global central bank cartel did the same to assure the world of USD funding availability, it may be time to wonder i) just how bad is the global FX crunch in any currency (EUR most certainly included - see near record ECB deposit facility usage), ii) just how broken is the shadow banking system - as a reminder with Lehman it was money markets (a major component of shadow liquidity), now it is repo (smaller, but still critical component of shadow banking) that is failing and iii) when will this crisis escalate to the next logical step?

Do you realize this is one sentence? LOL

Tue, 12/06/2011 - 13:50 | 1951456 Smiddywesson
Smiddywesson's picture

Now just who do we know that is obsessed with banking and is perpetually run-on periodphobic?  Hmmm?  And Robo always shows up in his/her posts?  Hmmm, hmmm?

Tue, 12/06/2011 - 13:05 | 1951235 RobotTrader
RobotTrader's picture

Funny how people are still "clamoring" for paper currency.

It is in acute short supply.

To the point where governments are taking radical action.

Meanwhile, nobody wants gold, gasoline, grains, etc.  They are selling hard assets in order to find more "paper".

Not only that, but virtually every California Muni-Bond ETF is making new 52-week highs today.

http://clearstation.etrade.com/cgi-bin/bbs?post_id=9437812&usernm=wndysrf

Meredith Whitney must be in a Malibu rehab facility by now.

 

Tue, 12/06/2011 - 13:14 | 1951257 somethingisrotten
somethingisrotten's picture

MoMo Lizard, go back to playing your LULU and your LALA.  Your record in this area is pathetic.

Tue, 12/06/2011 - 13:16 | 1951268 CPL
CPL's picture

They haven't been though, only assholes that want their worthless paper are the banks.  The same assholes that are in trouble.  So how does this do anything but create inflation?

 

You should buy some of those bonds Greg, they seem like a great deal.  Go all in.  You seem very confident that you'll get something back from them.  You can then take all the "profits" and put them into your site.

 

It's a win win for all of us if you do.

Tue, 12/06/2011 - 13:19 | 1951280 SheepDog-One
SheepDog-One's picture

All the free paper currency anyone could have ever dreamed of printing in 100 lifetimes, and theyre all still in deep trouble. Gee, who could have ever seen that one comin?

Tue, 12/06/2011 - 13:28 | 1951305 SheepDog-One
SheepDog-One's picture

MoMoFaded still desperately cheerleading for a rally so he can get back to his entry point of DOW 12,700 months ago when he was here posting his blogs scolding all bears they were about to be left in the dust.

Of course, actual track record means nothing to the Faded one....thats all just a cntrl/alt/del fix.

Tue, 12/06/2011 - 13:33 | 1951352 Village Smithy
Village Smithy's picture

Please, do not speak disparagingly about Meredith, I,I, I love her.

Tue, 12/06/2011 - 13:48 | 1951441 Little John
Little John's picture

Me too

Tue, 12/06/2011 - 13:34 | 1951359 Dr. Gonzo
Dr. Gonzo's picture

Everyone wanted to buy internet stocks in 1999 too. The same people wanted to buy a house in 2007. People are funny that way.

Tue, 12/06/2011 - 14:04 | 1951543 catacl1sm
catacl1sm's picture

rational irrationality or incorrect information. Take your pick, both fit the scenario.

Tue, 12/06/2011 - 13:56 | 1951473 Smiddywesson
Smiddywesson's picture

Meanwhile, nobody wants gold, gasoline, grains, etc.

Correct, paper is king, until it isn't, and seeing as the throne room is ablaze, I figure it's reign is just about done.

Green for Robo, even if the post was just a kick at the anthill, he is essentially correct.  LULU and Netflix are great, until they're not, and paper gold is just paper until that little game is over too.  (probably by mid 2012, but I said the same about 2011 so what do I know?)

Tue, 12/06/2011 - 13:07 | 1951238 jcaz
jcaz's picture

WTF......

Tue, 12/06/2011 - 13:11 | 1951253 ZeroPoint
ZeroPoint's picture

Time to pawn the Crown Jewels.

Tue, 12/06/2011 - 13:19 | 1951260 JustObserving
JustObserving's picture

WTF... someone actually wants the Sterling?  Doesn't the UK have by far the largest total debt to GDP ratio in this world?  Doesn't the UK not have a large financial sector producing fake profits and a fake GDP? Besides, UK is currently engaged in QE.

How can there be a shortage of sterling? They are not printing fast enough?? More Bizzaro than Bizzaro.

Tue, 12/06/2011 - 13:17 | 1951274 RobotTrader
RobotTrader's picture

Exactly.

Central banks are not printing fast enough

If they were smart, they would firewall the accelerator

And put so much currency into circulation that the world would be flooded with currency and people would be clamoring for hard assets instead

Then we would see Dow at 15,000, Gold over $2,000 and radically lower unemployment.

What the hell are they waiting for?

Tue, 12/06/2011 - 13:20 | 1951295 SheepDog-One
SheepDog-One's picture

Oh...well when has that ever been done and not resulted in total devastation?

Tue, 12/06/2011 - 14:13 | 1951608 francis_sawyer
francis_sawyer's picture

"a nickel ain't worth a dime anymore"

~Yogi Berra

Tue, 12/06/2011 - 13:24 | 1951303 The Swedish Chef
The Swedish Chef's picture

Dissolve, suck up, inject... Robot, you and your kind are no better than junkies. Worse actually, because junkies admit they get high for their own sake and that dope and substance abuse is bad. You keynesian lot make it put to be about saving the world with harmless QE when in fact all you want is for the central banks to make up for your own trading losses. 

Tue, 12/06/2011 - 13:27 | 1951314 SheepDog-One
SheepDog-One's picture

MomoFaded has always had a deep seated fantasy of one day becoming a Pigman that he admires so much....never happen.

Tue, 12/06/2011 - 14:07 | 1951563 catacl1sm
catacl1sm's picture

CB intervention is preventing the market correcting for misallocation of capital. The longer they keep printing, the longer it will take for the correction to occur causing inflation in consumer goods and widespread unemployment, both of which reduce the living standard of working people. And when the correction DOES come, it will be fierce.

Tue, 12/06/2011 - 14:19 | 1951646 Smiddywesson
Smiddywesson's picture

CB intervention is preventing the market correcting for misallocation of capital. The longer they keep printing, the longer it will take for the correction to occur causing inflation in consumer goods and widespread unemployment, both of which reduce the living standard of working people.

A reduced standard of living in the West is one of the pigmen's goals so they can have a more balanced international trade after the dust clears.  It is no coincidence that people in the West are being discouraged in buying gold and silver and people in the East are being encouraged to do so.

Tue, 12/06/2011 - 14:15 | 1951621 Smiddywesson
Smiddywesson's picture

LOL, you need to roll another sock puppet called Hyperobotrader.

If they print so much paper that the Dow goes to 26,000, the currency would be worthless and the holders of PMs win. 

If they don't print then the whole sheebank blows up, because the system is already past the point of no return where austerity and cuts will fix it.

Either way, PMs win, provided you have the guts to take the pain if and when paper prices go down.  Whether they will or not is unclear, but the end game where physical is king, is crystal clear.

 

Tue, 12/06/2011 - 13:20 | 1951288 lolmao500
lolmao500's picture

Will the UK be downgraded already?

Tue, 12/06/2011 - 13:29 | 1951331 tim73
tim73's picture

1. rule of banksterism: Burn your own base only when there is nothing else left to burn.

Tue, 12/06/2011 - 13:21 | 1951298 Byte Me
Byte Me's picture

"The size of any ECTR operation would be announced the day prior to the operation."

Considering how sterling behaves in stressful instances (1992 anyone?) They obviously hve the use of one TARDIS.

Tue, 12/06/2011 - 13:25 | 1951315 tim73
tim73's picture

London, go at throttle up!

Tue, 12/06/2011 - 13:45 | 1951373 Temporalist
Temporalist's picture

Did someone say Bank Run?

Euro Crisis Uncertainty Anxious Greeks Emptying Their Bank Accounts

Many Greeks are draining their savings accounts because they are out of work, face rising taxes or are afraid the country will be forced to leave the euro zone. By withdrawing money, they are forcing banks to scale back their lending -- and are inadvertently making the recession even worse.

http://www.spiegel.de/international/europe/0,1518,802051,00.html

 

*Update - Drudge just picked this up on front page

http://www.drudgereport.com/

Tue, 12/06/2011 - 14:08 | 1951569 catacl1sm
catacl1sm's picture

Didn't WWII end The Great Depression? Maybe we should try that again. /sarc

Tue, 12/06/2011 - 15:20 | 1951990 MFL8240
MFL8240's picture

WWII did not end the depression, the Industrial Revolution ended the Depression.

Tue, 12/06/2011 - 15:00 | 1951869 Quinvarius
Quinvarius's picture

Weimar also thought their problem was a currency shortage.  LOL. 

Tue, 12/06/2011 - 15:19 | 1951985 MFL8240
MFL8240's picture

Would like to see the UK collapse and the US to follow so the cleansing process could begin.  

Tue, 12/06/2011 - 16:33 | 1952421 youngandhealthy
youngandhealthy's picture

Selling England By The Pound.....

Hummm the dummm the dummm......

 

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