Whoops.
This little market notice — from the Bank of England — slipped past us on Monday:
MARKET NOTICE – EXPANDING ELIGIBLE COLLATERAL IN THE DISCOUNT WINDOW FACILITY AND INFORMATION TRANSPARENCY FOR ASSET-BACKED
That’s the long-awaited outcome of the central bank’s consultation into the type of bank collateral it allows banks to use at its discount window facility (DWF). And, as we’ve noted before, the BoE has been keen to expand its accepted collateral in an effort to cut down on so-called ‘phantom securities,’ or originator-made securitisations created specifically for central bank use.
Doing so, it’s hoped, might help BoE liquidity flow through to the private sector, rather than just banks’ spooky synthetics. It might also cut down on some of the risk the Bank could be assuming in accepting the ghostlike securities, which have never traded in markets and often have to be model-priced.
Anyway, the Bank launched a consultation on the idea in March, and the results are . . .
This Market Notice sets out the results of the Bank of England’s recent consultation on broadening the range of collateral eligible in the Bank’s Discount Window Facility (DWF) to include loan portfolios; and on the Bank’s initiative to require greater information transparency in relation to asset-backed securities and covered bonds (ABS) as part of the eligibility criteria for instruments accepted in its operations. The Bank intends to implement both of these initiatives, with further detail on the criteria and timescales to be announced later in the year.
Which means for the first time ever, the Old Lady will be accepting loan books as eligible collateral. In particular the loans have to be residential mortgages, consumer loans (excluding credit cards), or commercial real estate or corporate loans to a non-bank. And the borrower must be UK-based.
On the risk front, the Bank is also introducing some new requirements for ABS and covered bonds, which form the bulk of its phantom securities. For instance, applicants will have to provide detailed loan level information, prospectuses, standardised monthly updates and cash flow models.
What’s more, it looks like the BoE wants all that phantasmal information to be made public:
The Bank initially envisages that all of the above information be placed on a website maintained by the issuer/originator (or by another party on their behalf), and that it be made freely and readily available to interested third parties. The Bank would not object to a shared infrastructure being developed but does not intend to mandate this at present.
Hooray for new (spooky) web offerings!
Related links:
The phantom securities which haunt the BoE, quantified – FT Alphaville
Phantom securities at the BoE – FT Alphaville
Lehman alone in its Fed-Freedom CLO bid? – FT Alphaville