MNI POLICY: BOE Launches Weekly Euro Liquidity Facility>

     By Jai Lakhani, Irene Prihoda and David Robinson

     LONDON (MNI) - The following are the key points from the March 

Financial Policy Committee (FPC) statement and minutes released Tuesday 

by the Bank of England:

     -As part of its Brexit preparations, the FPC said that it was 

launching a new liquidity facility in Euros (LiFE), with the first 

auction next Wednesday. These auctions will occur on a weekly basis over 

the coming months. 

     The facility requires the activation of the existing swap line with 

the European Central Bank and is designed as a backstop facility.    

     -Whilst the FPC continued to argue that the core of the financial 

system is prepared for a disorderly no-deal Brexit, market stability 

would likely be impeded under such a scenario. 

     The FPC noted that a disorderly no-deal Brexit could result in 

significant market turbulance. The aim of ensuring that the core of the 

financial system is resilient in such a scenario is to ensure that it 

does not amplify market shocks and make bad times worse.  

     -EU member countries currently hold 10% of UK gilts and 15% of UK 

banks' debt, according to BOE figures. Post Brexit, appetite for UK 

assets from EU countries could diminish due to the fact it would cost 

these institutions more to hold UK assets as a result of the UK's new 

treatment as a "third country" for capital and regulatory environments.   

     -With reference to the 2019 bank stress test, the FPC said that 

domestically the test is broadly unchanged. However, the global 

environment paints a more riskier picture. The US has seen an increase 

in risk factors, with the FPC citing higher corporate debt lending. 

China's debt levels has continued to be a cause for concern and 

political development in Europe (most notably Italy) were flagged by the 

FPC.  

     -Evidence of resilience in the UK financial system can be seen 

through the significant reduction in the use of short-term wholesale 

funding by financial institutions. Furthermore, the financial system as 

a whole holds over stg1 trillion in high-quality liquid assets.     

     e-mail: jai.lakhani@marketnews.com 

[TOPICS: M$B$$$,M$$BE$]