The Bank of England may have increased its foreign currency lending to banks, judging from the latest weekly Bank Return.
The Bank’s Annual Report, published on 14 July, revealed a rise of £8.2 billion in its foreign currency lending to banks in the year to the end of February, financed by borrowing from other central banks – see here for more details. This may have reflected a “covert” support operation similar to the swap arrangements between the Fed and the ECB and Swiss National Bank, under which the latter have borrowed dollars for onlending to banks in Europe.
According to the weekly Return, the Bank’s “other assets” – comprising mainly foreign currency assets and the loan to Northern Rock – jumped by £2.9 billion in the week to Wednesday, reaching their highest level for seven weeks. With Rock repaying its debt as its mortgage borrowers refinance their loans elsewhere, the increase may reflect an expansion of the Bank’s foreign currency lending.
The various additional liquidity support measures announced by the Fed this week included a temporary increase in the ECB’s swap facility from $50 billion to $55 billion to accommodate an extension of the term of loans offered to banks in Europe from 28 to 84 days. This suggests demand for dollars by European banks remains strong, partly reflecting a need to fund dollar assets transferred from off-balance-sheet conduits and SIVs.