The Bank of England on Friday announced details of the planned emergency lending operation called the Extended Collateral Term Repo Facility (ECTR) to avoid a possible liquidity crunch.
The facility will help to mitigate risks to financial stability stemming from a shortage of sterling liquidity by lending to the banking system.
The BoE intends to hold an auction at least monthly until further notice and the first auction will be held on June 20.
Under the ECTR facility, the central bank will offer sterling liquidity with a maturity of 6 months against specified collateral. The minimum bid rate will be just 25 basis points over Bank Rate.
The size of the auction will be announced a day prior to each operation and will be subject to a minimum of GBP 5 billion. All firms registered for access to the Bank's Discount Window Facility are eligible for auctions.
In a speech at the Mansion House on Thursday, BoE Governor Mervyn King announced plans to start holding auctions of sterling liquidity.
by RTT Staff Writer
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