Bank of England balance sheet

[Optobear]

In 2014 the Bank of England stopped reporting data that had been required since 1844, due to concerns that it might reveal Bank Operations and reduce the ability of the Old Lady to intervene to save the markets. That the decision to recommend that was made by three ex-BoE employees, is irrelevant.

Anyway

The BoE reports this now

http://www.bankofengland.co.uk/publications/Documents/weeklyreport/2016/2610.pdf

The new weekly report.

It has a thing called "Loan to Asset Purchase Facility"

That seems to increase by something like £2bn to £2.5bn each week. Or at least that is what is has done over recent weeks.

Now since £2.6bn represents £41 per person per week in UK, or £2,166 per year per person. I wonder what it is? For my family of 5 that represents the BoE increasing its Loan to Asset Purchase by a rate equivalent to about £12k/annum. That sounds a disturbingly huge amount?

Does anyone know what this is?

 

[interestrateripoff]

Giving money to spivs.

[doomed]

Once the curtain falls people are in for the shock of a lifetime.

[adamLancs]

It's QE.

The BoE issues gilts and the BoE buys the gilts.

Yes it really does work like that.

Also they help out failing companies to avoid market shocks, that is what the corporate bonds bit is about.

[Will!]

3 hours ago, Optobear said:

It has a thing called "Loan to Asset Purchase Facility"

That seems to increase by something like £2bn to £2.5bn each week. Or at least that is what is has done over recent weeks.

Now since £2.6bn represents £41 per person per week in UK, or £2,166 per year per person. I wonder what it is? For my family of 5 that represents the BoE increasing its Loan to Asset Purchase by a rate equivalent to about £12k/annum. That sounds a disturbingly huge amount?

Does anyone know what this is?

BoE Asset Purchase Facility

Quote

In January 2009, the Chancellor of the Exchequer authorised the Bank to set up an Asset Purchase Facility (APF) to buy high-quality assets financed by the issue of Treasury bills and the DMO’s cash management operations.  The aim of the Facility was to improve liquidity in credit markets.  The Chancellor also announced that the APF provided an additional tool that the Monetary Policy Committee (MPC) could use for monetary policy purposes.  When the APF is used for monetary policy purposes, purchases of assets are financed by the creation of central bank reserves. More information can be found in the Red Book: 

On 4 August 2016 the MPC voted to increase the stock of purchases of UK government bonds by the APF to £435bn.  In addition, the MPC voted to make up to £10bn of purchases of corporate bonds over 18 months.  It also voted to introduce the Term Funding Scheme, to reinforce the transmission of Bank Rate cuts to those interest rates actually faced by householders and business by providing term funding to banks at rates close to Bank Rate.

APF transactions are undertaken by a subsidiary company of the Bank of England – the Bank of England Asset Purchase Facility Fund Limited (BEAPFF).  BEAPFF borrows from the Bank to pay for the assets it purchases (under the Gilts and Corporate Bond Purchases Schemes) and the loans it makes under the Term Funding Scheme.  This loan to BEAPFF appears on the Bank's balance sheet as an asset.  The corresponding liability is the increase in central bank reserves which have been created to fund the loan to BEAPFF.

 

[Optobear]

Thanks Will!

So the number has increased to £408,690m  from £406,998m a week ago.

So the Bank of England's assets have increased by  £1.7bn in just one week. That sounds excellent.

But they have lent that money to their own subsidiary, and then that subsidiary has bought bonds in the market, and now owes an even greater amount to the Bank of England... hmmm.... 

I did once work for an accountancy firm, so I have some limited understanding of finance, ... and I'm sort of struggling to see how this a good thing? 

I do remember a man called Robert Maxwell, he came to a bad end, but I think he perhaps would have made a useful advisor to the Bank of England today? But his debts were only £400m, which barely compares. 

Perhaps there should be a campaign to pardon Mr Maxwell, given that his actions in defrauding pensioners seems to be very much in the spirit of modern central banking?

 

[Errol]

Bailing out the banks.

[Optobear]

Increased to £411,488

 

grew by a stonking £2.5bn in a week!!

well done Mr Carney - you run the fastest growing business in Britain. In five years time the Bank of England will be the biggest business in the world, eclipsing Apple.

I fully expect that within 20 years the Bank of England will be so vast and so valuable that no British Citizen will ever have to work again. 

I can do nothing but cheer for Mark, surely the finest Canadian of all time. £2.5bn in a week. What a guy. 

[Greater Fool]

Quote

In January 2009, the Chancellor of the Exchequer authorised the Bank to set up an Asset Purchase Facility (APF) to buy high-quality assets financed by the issue of Treasury bills and the DMO’s cash management operations.

High Quality Assets? Like back in the day when the American subprime bonds and CDOs were assessed as AAA by the rating agencies?

[billybong]

On 10/31/2016 at 8:47 PM, interestrateripoff said:

Giving money to spivs.

+1

 

Spivs giving money to spivs - and corporate spivs as well now.

Quote

http://www.thisismoney.co.uk/money/investing/article-3723815/Why-Bank-England-spashing-10bn-corporate-bonds.html

 

 

Edited November 12, 2016 by billybong

[Ah-so]

The reasoning behind the restarting of the APF must be the condition of the credit markets in 2014 resulting in general gloominess particularly since the referendum. 

There has been a lack of liquidity in the sterling bond market and this can be a vicious circle - if you are not sure that you will be able to sell your bond you are less likely to buy it and if you are unwilling to buy then companies will find it more difficult to issue debt in the first place. The consequence of this is that they will be unable to invest in new projects. 

The APF is more than just QE but I don't like the fact that it will make the BOE one of the largest players in the sterling bond market over the next year. 

[Optobear]

On 12/11/2016 at 4:58 PM, Ah-so said:

The reasoning behind the restarting of the APF must be the condition of the credit markets in 2014 resulting in general gloominess particularly since the referendum. 

There has been a lack of liquidity in the sterling bond market and this can be a vicious circle - if you are not sure that you will be able to sell your bond you are less likely to buy it and if you are unwilling to buy then companies will find it more difficult to issue debt in the first place. The consequence of this is that they will be unable to invest in new projects. 

The APF is more than just QE but I don't like the fact that it will make the BOE one of the largest players in the sterling bond market over the next year. 

The latest figures are out... wait for it, a drum roll please, and more applause for Mr Mark Carney ladies and gentlemen.. last week he grew the Bank of England by a paltry £2.5bn, while this week, wait for it...

the new total is 

£415,204m 

That's right he has grown the value of our bank by £3.7bn in just one week.

We're rich I tell you.

And lest you think that is easy for Mr Carney - let me just convert that to a number we can comprehend. So we can really appreciate Mr Carney's genius.

That works out as £314k per minute. 

That is right the equivalent of one new house per minute for a whole week. Mr Carney is working 24/7 for that gain.

I am so glad that Economics makes sense.

 

 

 

 

[lie to bet]

On 12/11/2016 at 3:20 PM, Tiger131 said:

Asset Purchase Facility (APF) to buy high-quality assets

The clue is in the wording as ever.

high quality assets: new speak for junk that no other institution wishes to risk buying.

If they were high quality assets there would be a queue of investors clamouring to buy.

Is there a list of "assets" purchased or would this be commercially sensitive information that is concealed to prevent us knowing which companies are in deepest trouble.

[darkmarket]

46 minutes ago, lie to bet said:

Is there a list of "assets" purchased or would this be commercially sensitive information that is concealed to prevent us knowing which companies are in deepest trouble.

http://www.bankofengland.co.uk/markets/documents/cbeligiblesecurities.xls

Discussed on the other BoE thread: 

 

[Greater Fool]

8 hours ago, lie to bet said:

Is there a list of "assets" purchased or would this be commercially sensitive information that is concealed to prevent us knowing which companies are in deepest trouble.

These "assets" are just useless pieces of paper which the UK taxpayer and their children are being forced to underwrite with the value of with their future earnings and labour. The elastic can only be stretched so far before it snaps.

[onlyme2]

3 minutes ago, Tiger131 said:

These "assets" are just useless pieces of paper which the UK taxpayer and their children are being forced to underwrite with the value of with their future earnings and labour. The elastic can only be stretched so far before it snaps.

Also, the currency dilutive effect it has now and the resulting devaluation.

 

[crashmonitor]

14 hours ago, Tiger131 said:

These "assets" are just useless pieces of paper which the UK taxpayer and their children are being forced to underwrite with the value of with their future earnings and labour. The elastic can only be stretched so far before it snaps.

Aren't these assets government debt...ie. bonds. In one sense they are useless because government debt is unpayable except like any Ponzi scheme private holders of this debt will probably get paid whilst there is a glut of global savings to pay out maturities and roll over the debt +++++.

Fwiw I recently read that the banking crisis, in terms of banking shares etc. that the governement was forced to take on in 2008 and thereafter, have cost a one off 1.3% of annual GDP. The real cost of the crisis is this toxic public sector debt that has risen from 40% of GDP to 90% of GDP in the wake of the private sector and households stopping borrowing, with further growing off balance sheet pension and health liabilities that dwarf this figure.

Let's face it we are f%%ked. This morning I listened to a Select committee that was arguing for 1950s born women to have some redress  for having to work til 65. Even had one woman that was furious that she hadn't got hers at 60. This is an MP on a huge salary, probably got free university education and thinks 39 years from 21-60 is fair when followers may have to go from as early as 16 years old to 68 and increasing. So f^&king selfish and shows that public expenditure  will never come under control.

Edited November 19, 2016 by crashmonitor

[Greater Fool]

10 hours ago, crashmonitor said:

Aren't these assets government debt...ie. bonds. In one sense they are useless because government debt is unpayable except like any Ponzi scheme private holders of this debt will probably get paid whilst there is a glut of global savings to pay out maturities and roll over the debt +++++.

 

No it's not just government bonds, the "assets" also supposed to include corporate bonds etc.

 

 

[frederico]

Presumably its still stuff those useless banks can't flog and are too illiquid to actually use. So they're really worth nothing but the boe has decided to pay a fortune for them.

It's a bit like when Brown flogged our gold at the bottom of the market.  All to save the greatest industry this country has apparently. God save the queen.

[Optobear]

An update and a question.

First off, the BoE has grown as usual, 

Loan to asset purchase facility now at £527bn, 

I do think it was meant to be limited at £435bn... 

http://www.bankofengland.co.uk/markets/Pages/apf/default.aspx

Maybe their bank manager is a bit more lenient than usual... I know if I went, £92,000,000,000 overspent my bank manager would be concerned.

But more seriously, it does rather beg the question of just how much of the money being issued by the Government (via the Debt Management Office) is immediately bought up by the Asset Purchase Facility (part of the BoE and Treasury).

Interesting link from BoE

Suggests that they already hold over 70% of some of the bonds issued.

 

Anyway, does anyone else find this all a bit weird? Also, why do people not seem to question this seemingly infinite ability to print money? If most of the bonds issued by one arm of government are bought by another arm of government that explains why the markets don't crash immediately... but it is all a bit fishy.

[adamLancs]

1 hour ago, Optobear said:

...

Anyway, does anyone else find this all a bit weird? Also, why do people not seem to question this seemingly infinite ability to print money? If most of the bonds issued by one arm of government are bought by another arm of government that explains why the markets don't crash immediately... but it is all a bit fishy.

It's not weird if every other country is at it too... it actually balances out to some degree. Not for the poor mind you... the wealth gap is increasing. The second post in this topic nails it pretty succinctly.

[Will!]

1 hour ago, Optobear said:

An update and a question.

First off, the BoE has grown as usual, 

Loan to asset purchase facility now at £527bn, 

I do think it was meant to be limited at £435bn... 

http://www.bankofengland.co.uk/markets/Pages/apf/default.aspx

Maybe their bank manager is a bit more lenient than usual... I know if I went, £92,000,000,000 overspent my bank manager would be concerned.

Quantitative Easing is currently limited to £435bn but strictly speaking the Term Funding Scheme is not QE.  As you say the BoE balance sheet is only going up though.

1 hour ago, Optobear said:

But more seriously, it does rather beg the question of just how much of the money being issued by the Government (via the Debt Management Office) is immediately bought up by the Asset Purchase Facility (part of the BoE and Treasury).

Interesting link from BoE

Suggests that they already hold over 70% of some of the bonds issued.

 

Anyway, does anyone else find this all a bit weird? Also, why do people not seem to question this seemingly infinite ability to print money? If most of the bonds issued by one arm of government are bought by another arm of government that explains why the markets don't crash immediately... but it is all a bit fishy.

Debt monetisation and currency debasement underpin our economy now.

This was news in 2011, it's not news now.

Robert Peston in 2011:  The eurozone's borrowing costs may stay lethally high

Quote

[W]hen the UK government, for example, is perceived to have borrowed too much, the Bank of England can buy some of its debt and turn it into money. This is, in fact, the Bank of England is doing, to the tune of £275bn, through quantitative easing (though it hasn't gone the whole hog - which it could do if the UK were ever in a seriously deflationary recession - of cancelling the debt).

Of course, this so-called monetisation can debase the currency and spark inflation.

Front-running sustains the bond market.

Shaun Richards in 2016:  The consequences of rising UK Gilt yields on fiscal policy, pensions and mortgages

Quote

Over as far ahead as we can see then we are expecting inflation adjusted or real yields to be strongly negative. Accordingly the UK Gilt market has been singing along to the Nutty Boys.

Madness, madness, they call it madness
Madness, madness, they call it madness
I’m about to explain
A-That someone is losing their brain

Why have they done this? This is another theme of these times as they are simply front-running the Monday, Tuesday and Wednesday purchases of the Bank of England. This manipulation of the market by it means that all the old rules for pricing Gilts have been both broken and ignore or if we are less polite a false market has been created.

 

Edited September 2, 2017 by Will!

[Ah-so]

1 hour ago, Optobear said:

An update and a question.

First off, the BoE has grown as usual, 

Loan to asset purchase facility now at £527bn, 

I do think it was 

Anyway, does anyone else find this all a bit weird? Also, why do people not seem to question this seemingly infinite ability to print money? If most of the bonds issued by one arm of government are bought by another arm of government that explains why the markets don't crash immediately... but it is all a bit fishy.

I don't think that the BOE buys them straight from the DMO, but rather buy them from the banks. This model has the added advantage of increasing the profitability of banks who buy from the DMO and sell to the BOE.

After all, just giving HMT printed money works be too easy and make it all the more obvious that the economy relies on printed money.