UK inter-bank market: Don’t bank on it

Could problems in the UK inter-bank market have been avoided?

There are those that blame the Bank of England for being slow to permit UK banks to use mortgages as collateral. This is a little unfair – UK mortgage markets have functioned well for some time without any central bank intervention. But for years, mortgage-backed bonds have been eligible for repo with the European Central Bank and the Federal Reserve followed suit recently.

Spanish banks in particular have done many mortgage-backed deals that have been used specifically for repo.

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