Bank of England extends eligible collateral for repo facility

The Bank of England (BoE) on Friday extended the range of collateral eligible for its weekly sterling three-month repo facility to include AAA-rated asset backed securities (ABSs) of corporate and consumer loans and highly rated asset-backed commercial paper (ABCP).

The BoE said the move, effective from Tuesday 7 October, will make a further £40 billion available to UK banks who tap the facility. The bank originally launched the scheme on April 21, injecting £50 billion into the financial sector by allowing banks to swap residential mortgage-backed securities for Treasury bills, which could then be used as collateral on loans.

“In these extraordinary market conditions, the BoE will take all actions necessary to ensure that the banking system has access to sufficient liquidity,” remarked Mervyn King, governor of the BoE.

Banks will bid a minimum fee of 50 basis points over the overnight index swap rate to access funding through the extended scheme, under which weekly auctions will continue until at least November 18.

Specifically, the BoE will now accept the most senior AAA tranches of UK, US and European prime ABS backed by student loans, consumer loans, auto loans and certain equipment leases, as well as the most senior AAA tranches of commercial mortgage-backed securities and covered bonds backed by commercial mortgages.

Additionally, banks will be able to access funds by posting AAA tranches of ABS backed by high quality corporate loans - not including leveraged loans - and the equivalent tranches in ABS backed by corporate bonds. ABCP carrying the highest short term ratings (A-1+/ P1/F1+) and backstopped by banks rated at least A1/A+ may also be eligible.

The bank will only accept cash assets, with ratings from at least two of Fitch, Moody’s of Standard & Poor’s. Transactions whose rating was primarily based on a third party guarantee will not be accepted. Securities can be denominated in sterling, euros, US dollars, Australian dollars, Canadian dollars, Swedish krona and Swiss francs.

See also: BoE reveals £50bn liquidity facility