How to borrow from the Bank of England

As regular readers of my and / or Brendan’s blog and twitter feeds may know, we have been looking into how to set up a bank. The primary reason being that if the Bank of England embarks on a policy of quantitative easing (otherwise known as printing money / helicopter money), then we want to get a piece of the action. We certainly have plenty of ideas for cash yielding investments to spend it on!

Anyway if we get past the formalities and set up our bank, how do we go about borrowing money from the Bank of England?

Unfortunately, I couldn’t quite find a simple answer to this on the Bank of England’s website, but I think the process comes down to the following 3 steps:

If you read through the eligible securities section on their site, you will see that it basically just includes things like government bonds. This is not really much good to us, as we would need to use our cash to buy the bonds in the first place, in order to borrow the same amount back. However, there may be a solution, the Discount Window Facility (DWF).

The purpose of the DWF is to provide liquidity insurance to the banking system. The Discount Window Facility is not intended for firms facing fundamental problems of solvency or viability. Eligible banks and building societies may borrow gilts, for up to 30 days, against a wide range of collateral in return for a fee, which will vary with the collateral used and the total size of borrowings.

Institutions eligible to participate will be banks and building societies that are required to pay cash ratio deposits (CRDs) and which otherwise meet the requirements for eligibility, as determined by the Bank, for the Bank’s Sterling Monetary Framework facilities.

The key point here is that they say they will accept a wide range of collateral in exchange for government bonds (gilts). Presumably, the gilts could then be used to borrow hard cash using their standard lending facilities.

If they are willing to accept poison assets such as dodgy loan books from mortgage lenders, then I don’t see why they wouldn’t accept shares in companies, or loans to businesses.

Issues to solve:

  • What is required to become a bank (or more correctly, a monetary financial institutions)?
  • Will the bank accept shares in private companies as collateral, or a loan book that is made up of advances to start ups and other small businesses?
  • If the loans are for 30 days, can they be rolled over each month?
  • Are there any other schemes to borrow money from the BoE on a longer term basis?

Here’s the application form.

4 thoughts on “How to borrow from the Bank of England”

  1. The Bank of England should now open its doors to anyone with a mortgage or credit card debts, offloading expensive debt to make it more manageable. Consumer confidence is everything. If you can prove an unmanageable debt to a bank or credit card, they should take it on immediately. As the exposure to risk for each of the banks/credit cards falls, so confidence in the markets will rise, and as consumers finally benefit from the true slump in the economy by regaining control of their finances, so they will act more prudently as they move forward – they will begin to save and spend more efficiently. Everyone is learning lessons the hard way, but let’s not torpedo the economy simply to teach people an even harder lesson. You need to hand the benefits of the 1-1.5% base rate straight to the consumer, not to the banks who will only try to shore up their own immediate exposure to risk. Everyone should contact their local MP immediately to make this a reality. The ’08 Christmas slump says it all.

  2. my name is anthony from the u.s im just wondering could you tell me if you know a bank that lending to business in the u.s on commerical loan if so could you tell me whom i need to speak with thanks

  3. Re top comment: The bank of England should not begin buying debt from sub prime borrowers. This is a ridiculous theory which would only leave irresponsible borrowers with the confidence that they will be bailed out causing over borrowing. Due to the nature of what you have suggested it would only be those with a poor history of repaying credit in need. The bank of England may be a “sepearte entity” to the government itself. But should they really take on the entire publics risky debt which is unlikely to be repaid? This would only cost society as a whole more in taxation.

Leave a Reply
