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The BoE takes collateral when risk to the central bank or the HM Treasury increases. Under the changes, however, the BoE and HM Treasury intend to provide collateral in foreign currency securities to counterparties when the risk moves out in BoE/HM Treasury’s favor.
The planned changes will apply to over-the-counter derivatives transactions in relation to the bank’s own balance sheet as well as the management of the U.K.’s foreign exchange reserves. “Thedecision to make this change has been driven by value-for-money considerationsand has been taken now because the costs of transacting derivatives have been rising over the course of the past few years,” read a statement from the BoE and HM Treasury.
The changes are expected to take effect during 2013. A spokeswoman at the BoE declined further comment.
This article was originally published by Derivatives Intelligence.