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Bank Of England Liquidity Scheme


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http://www.bankofengland.co.uk/publication...ws/2009/006.htm

The total nominal value of securities held by the Bank as collateral in the Scheme amounts to

approximately £287bn. The Bank's valuation of those securities as at 30 January 2009 was

approximately £242bn, an effective discount to par of about 16%.

Most of the collateral received has been Residential Mortgage-Backed Securities or residential

mortgage covered bonds.

The haircuts currently applied to eligible securities are shown in the annex. During the remaining life

of the Scheme the Bank will continue to call for margin should the haircut-adjusted value of the

collateral fall relative to the value of Treasury bills lent. The Bank also reserves the right to vary

haircuts on the collateral.

I emailed them a while back about margin calls on secured assets, they never replied :angry:

Edit: Bloomberg Report

BOE Says Collateral Totals 287 Billion Pounds in Liquidity Plan

Email | Print | A A A

By Brian Swint

Feb. 3 (Bloomberg) -- The Bank of England said it accepted collateral with a nominal value of 287 billion pounds ($409 billion) in its emergency lending program for banks.

The bank values that collateral at 242 billion pounds as of Jan. 30, and it loaned 185 billion pounds in Treasury bills against it. Most of the collateral was residential mortgage-backed securities or mortgage-covered bonds, according to a statement by the central bank in London today.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

Last Updated: February 3, 2009 07:11 EST

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Edited by Mr. Parry
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Will the bank be asking for a margin call then?

Won't this have the negative effect of reducing the amount banks have to lend if they have to pay cash back to the BoE or will they just be able to dump more high value assets on the BoE?

From the same link

The haircuts are designed to protect against the risk of loss in the event of a counterparty defaulting,

and are therefore set taking into account uncertainty about possible valuations of the Bank’s collateral,

including in the event of default. In addition to ‘base’ haircuts, additional haircut add-ons are applied

to reflect, inter alia: currency risk; where securities are own name (reflecting the risk of correlation

between the quality of the collateral and the creditworthiness of the counterparty; and the services

provided by the counterparty to the securitisation structures); and for securities where market prices

are not available.

Securities are valued by the Bank using observed market prices that are independent and routinely

available publicly. The Bank reserves the right to use its own calculated prices, including where such

independent market prices are unavailable. Those calculated prices are designed to deliver valuations

taking account of securities’ contracted cash flows and yields of comparable securities, but not

individual loan-by-loan analysis of portfolios. To account for the risk that a calculated price is an

over-estimate of what a market price would have been had it existed, an additional haircut is added.

The Bank’s valuation of all securities is binding.

Looks like the Haliwide and some AVM work from rightmove, plus whatever they want to add in

or remove.

Note on calculation: adjusted collateral value (post-haircut) = collateral value x (100-haircut)%

Edited by Mr. Parry
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The bank values that collateral at 242 billion pounds as of Jan. 30, and it loaned 185 billion pounds in Treasury bills against it

IIRC, at the peak the total of securitsation and other funding for mortgages was about 680bn, this seems to suggest that over a third nearly a half of that money has repatriated out of UK and back to the Far east or wherever it originally came from.

I wonder why they picked the end of Jan to start releasing these figures?

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£287bn (or, well, £242bn) - That's quite a bit... especially as, now, the plan is to start buying the stuff as well as lend against it...

Erm, according to this... only £185bn was 'lent'.

http://uk.reuters.com/article/businessNews...E5123IO20090203

Now, if the face value of the assets was £287bn, and I can use a calculator, that gives a mean haircut of 35.4%.

This strikes me as odd... since, when the scheme was announced, the haircuts were between 10% and 30% for all the examples of acceptable collateral.

Does it strike anyone else as odd that the haircuts appear to have been much larger?

Edited by A.steve
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I emailed them a while back about margin calls on secured assets, they never replied :angry:

The cheek of it! Mervyn King, himself, should have replied to you! Get on the phone to Gordon Brown, straight away - they can't expect to get away with ignoring you, MP! Do they realise who you are?

p

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From the same link

Looks like the Haliwide and some AVM work from rightmove, plus whatever they want to add in

or remove.

Note on calculation: adjusted collateral value (post-haircut) = collateral value x (100-haircut)%

That's a lot of hair cuts going on.

Nice to see at least one industry is doing well at the moment.

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Erm, according to this... only £185bn was 'lent'.

http://uk.reuters.com/article/businessNews...E5123IO20090203

Now, if the face value of the assets was £287bn, and I can use a calculator, that gives a mean haircut of 35.4%.

This strikes me as odd... since, when the scheme was announced, the haircuts were between 10% and 30% for all the examples of acceptable collateral.

Does it strike anyone else as odd that the haircuts appear to have been much larger?

I sort of assumed earlier that the haircut cut applied to the market value not the nominal value, but i'm unsure now. The third page of the BOE pdf has details of how the haircuts are applied. I would have expected on average it would be a higher proportion, unless of course all the pap has been borrowed against.

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course, the reason they have to do this is because these "assets" are based on financial credit, were used to replace actual capital in the banks.

now they are borrowing again to put the capital back in place of the credit they changed capital for....head begins to spin.

clever.....NOT.

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course, the reason they have to do this is because these "assets" are based on financial credit, were used to replace actual capital in the banks.

now they are borrowing again to put the capital back in place of the credit they changed capital for....head begins to spin.

clever.....NOT.

Govt capital is credit or have we just found a big stash down the back of the sofa OR have we started printing it?

Is the word capital itself becoming devalued?

I always believed we would get to deflation but now we are here I am not so sure. spin.

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Govt capital is credit or have we just found a big stash down the back of the sofa OR have we started printing it?

Is the word capital itself becoming devalued?

I always believed we would get to deflation but now we are here I am not so sure. spin.

Trouble is they want us to BORROW the money, all the bailout money has been engineered to get everyone borrowing.

I do not want to borrow any money thank you, if you want to give away free money I'd rather you cut out the middle man and just give it to me. Rather than having me borrow it from a scheming banker.

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The cheek of it! Mervyn King, himself, should have replied to you! Get on the phone to Gordon Brown, straight away - they can't expect to get away with ignoring you, MP! Do they realise who you are?

p

:P They have replied before on several occasions, you should try it sometime. I don't think Mervyn King handles general enquiries

or Gordon Brown, they usually go through someone very junior sometimes passed up the line if they can't cover it.

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Govt capital is credit or have we just found a big stash down the back of the sofa OR have we started printing it?

Is the word capital itself becoming devalued?

I always believed we would get to deflation but now we are here I am not so sure. spin.

Government gilts are means of exchange, where bank credit or financial instruments are not. they ARE money.

Capital should be changeable for a debt. credit is not changeable for a debt without money being involved.

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Now that we own all the banks anyway isn't this just meaningless ******?

Ok so HBOS dump £75billion worth of their best assets off over at the good old BofE in exchange for £50billion of top quality government paper. Great, HBOS have liquidity and the taxpayer are earning 1.15% on the transaction according to Peston.

But as we own 43% of HBOS we havn't really earned anything as their loss is ours, and the BofE will prop them up if they fail. There must be a simpler way out of this mess.

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