There are serious political choices here, and they are not for the central bank to make. I have set out in this talk many of the things that a central bank can do with its balance sheet. It can create central bank money, and does so in implementing monetary policy. It can also support financial stability. The Bank can use its operations to distribute money around the banking system when the inter-bank market is not operating properly. And it can provide emergency short-term liquidity support for the system or individual banks under operational and market stress by changing the size, the maturity and the type of collateral taken in its operations. And can even supply foreign currency in extremis. But, being without access to private sector savings, the Bank can not provide sustained, medium-term funding for banks, nor lend directly in size to the non-financial sector on a sustained basis. 16  More information is available at http://www.fsa.gov.uk/pubs/international/uk_rcb.pdf. BIS Review 126/2010  7  Credit supply and syndicated loans Finally, and especially given the nature of this conference, I want to touch on the supply of credit more generally. Despite various forms of support from the Bank of England and from Government, it is clear that the lending capacity of the banking system, in the UK and elsewhere, is impaired and will take some years yet to recover. Some banks need to continue de-risking and de-leveraging. Others, including new banks, are likely to grow.
In recognition of continuing stresses in financial markets, the Bank announced in January 2009 that, for an additional fee of 25 basis points, it would temporarily permit drawings from the Discount Window with a maximum term of 364 days. 12  Because covered bonds and master trust RMBS are based on revolving pools of mortgages, an exception was made to accommodate them, but with a strictly declining limit over the three year life of the Scheme. 13  But it did require Treasury agreement for the Debt Management Office to create and lend the additional Treasury bills, and for the Treasury to underwrite the Scheme should there be any losses. BIS Review 126/2010  5  Access to the Discount Window is only permitted for firms that are considered by the Bank to be solvent and viable. Nevertheless, large scale borrowing from the central bank can generate credit risk concerns in the minds of market counterparties. To avoid this “stigma”, the Bank releases information on the use of the Facility averaged over counterparties and over a three-month period, released with a further quarter’s lag. Following a market consultation, the Bank has recently announced that, as of early next year, it will extend the range of collateral it is willing to take in the Discount Window to include diverse portfolios of “raw” loans. 14 This extension has a number of advantages. Securitising loans into asset backed securities – such RMBS – is expensive and only available to firms large enough to have a securitisation programme.