BoE reveals discount facility window

Following fears of a public backlash and bad publicity, the Bank of England has announced that there will be improvements to the emergency lending discount window.

It is introduced to make sure that financial institutions and agencies, that have received unexpected hits to their balance sheets, are able to access cash in order to protect their liquidity.

The emergency overnight loans can be taken out by any commercial bank that has the standing lending facility, although there is currently a penalty rate that is 1% above the official rates.

Despite the move made by the BoE, in order to take an active role in dealing with the credit crisis, banks have not been forthcoming in taking up the offer set by the Bank of England due to the fear of negative publicity as Barclays Plc was forced to deny having liquidity problems following its usage.

Now that this has come to light in this manner, the Bank of England’s new standing facility, allows banks to borrow from the central bank overnight and that will carry a penalty rate of 25 basis points which is a huge reduction on the previous 100 basis points.

At the end of each month, records of the average borrowed will be published, and the new standing order facility has been brought into action as a method of helping to enforce monetary policy.

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