Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
Reporting on key macro data at the time of release.
- Emerging MarketsEmerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
- MNI ResearchMNI Research
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
- About Us
By David Robinson
LONDON (MNI) - The Bank of England must overcome both financial stability
and political hurdles if it wants to re-start its Term Funding Scheme (TFS) as
part of any stimulus package that launched in response to Brexit developments
and the global slowdown, MNI has been told.
Bank analysis has shown that the TFS worked well in delivering stimulus
when needed, but outside experts say re-launching it would drive up public debt
levels and risk leaving some lenders reliant on cheap central bank funding. The
Monetary Policy Committee decides whether to deploy the TFS, but assessments of
its suitability as a policy tool will be wider ranging.
The TFS, a cut-price lending scheme to ensure rate cuts were fully passed
on, was part of the August 2016 post-Brexit vote stimulus package. The BOE's
analysis concluded that the scheme, which offered four year funding at close to
Bank Rate, was successful as mortgage and other loan rates decreased without
squeezing lenders' margins or restricting the supply of credit.
Analysis from Deloitte, the consultancy firm, warned that some lenders
would struggle with the rates they would have to pay in comparison to the
ultra-cheap TFS if it is wound down, resulting in slowing balance sheet growth,
and re-launching it would only postpone facing up to the problem, Gareth Read, a
Senior Manager in Banking and Capital Markets Advisory at Deloitte, told MNI.
From a political perspective, a difficulty with the TFS is that it has a
hefty impact on debt levels. TFS lending is accounted for as debt in the public
finances and total TFS loans amounted to stg127 billion by the time it was
closed to new lending in February 2018. The repayment of these loans, with the
first bulky repayments due in September 2020, will help to lower debt-to-GDP but
this benefit would be lost if the loans were rolled over or new TFS lending
Former Chancellor Philip Hammond's fiscal rules included a target for debt
to fall as a share of GDP in 2020/21, a goal which was, probably not
coincidentally, made easier to attain by the repayment profiles for the TFS.
Under electoral and Brexit pressures, these fiscal rules could be thrown out but
TFS repayments would make it easier for any Chancellor who was increasing
spending to claim debt was on the down path. Extending the TFS also carries
risks for the BOE.
"The other key thing about the TFS and QE is that they have increased the
gearing of the Bank of England balance sheet significantly. That increases risk
at a time when policymakers would like risk to be lower," Martin Wheatcroft,
Advisor to the Institute of Chartered Accountants on public finances, said.
The Bank repeatedly stresses its independence, but political sensitivities
do matter -- maybe not in assessing whether stimulus is needed, but certainly in
how to deliver it. While any decision on whether to restart TFS could fall to
current Governor Mark Carney, who is set to leave in January 2020, ideally from
the policymakers' perspective his successor would also be on board with whatever
decision is taken.
Kate Barker, a former MPC member and currently on the interviewing panel to
select Carney's successor, stressed recently the importance of a Governor, who
understood that the "credibility of policy is best served by being politically
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com