Criticism of the Bank of England’s special liquidity scheme as an unwarranted bail-out of UK banks misses the point. The scheme creates a level playing field for them to compete against US and eurozone financial institutions that already enjoy similar facilities.
The Federal Reserve’s decision to replicate the arrangement by which European Union eurozone banks have been able to monetize bonds backed by mortgages into hard cash on repo was driven by the fear that US broker-dealers were vulnerable to insolvency.
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