MNI POLICY: BOE May Open Balance Sheet To Payment Providers

--BOE Carney's Mansion House Speech On Tech; Payments Revolution

--BOE Carney Leaves Monetary Policy Out Of Traditional Set Piece Speech

By David Robinson

     LONDON (MNI) - The Bank of England plans to consult on opening up its

balance sheet to new payment providers, Governor Mark Carney revealed Thursday

in his annual Mansion House speech.

     Any such move would transform the nature of payment systems, allowing new

players to compete on level terms with banks, and could heavily inflate the size

of the BOE's balance sheet.

     Following are key points:

     --Traditionally, only commercial banks were allowed to hold reserves, and

this was extended to other financial institutions including broker-dealers, but

on Thursday Carney revealed the BOE is mulling going a lot further.

     The BOE is launching a consultation on allowing new payment providers,

which could include social media companies and others, to hold central bank

reserves.

     The move could cut traditional banks out of payment loops, and boost the

development of electronic money - digital tokens - by giving them full central

bank backing.

     The move may reduce counterparty risk and result in "unlocking billions of

pounds in capital and liquidity that can be put to more productive uses," Carney

said.

     The BOE also plans to work with other central banks to deliver instant

settlements in different countries.

     --The BOE governor said systems such as the headline-grabbing Libra

payments infrastructure - backed by a cooperative of technology companies such

as Facebook -- could "dramatically lower the costs of domestic and cross border

payments."

     He stressed that such a system would be systemically important and that

from the outset it would have to meet the highest regulatory standards on

resilience and transparency.

     --Carney said the BOE would help with the groundwork on new funding

platforms for small-to-medium sized business lending and that it would work on

risks and opportunities associated with cloud computing technology.

     He also announced that the BOE would stress test banks' resilience to

various climate change scenarios.

     --The Mansion House speech has been used in the past by Carney and his

predecessors to set out monetary policy thinking but he avoided any reference to

the economy or Brexit.

     Instead, he based his speech on a review by banker Huw van Steenis of the

future of the UK financial system. The review, published Thursday, looks at how

the BOE could promote innovate and improve financial sector resilience.

     Carney is nearing the end of his term, with a successor expected to be

announced in the autumn.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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