Crucially, the DWF is only intended to provide short-term liquidity support to banks – and is not intended to be used as a replacement for funding, which can only be sourced in a sustained way from private markets. And it is vital to stress that the DWF is not a 100% committed facility. At the point of application, the Bank will make a fresh, independent assessment of whether it deems the counterparty to be solvent and viable. To guard against moral hazard, the DWF charges fees which make it unattractive in normal times, but which would be more attractive under stressed market conditions. Because the  5  For more information, see Fisher (2011), “Recent developments in the sterling http://www.bankofengland.co.uk/publications/Documents/speeches/2011/speech487.pdf. 6  For more information see John, Roberts and Weeken (2012), “The Bank of England’s Special Liquidity Scheme”, in the Bank’s Spring 2012 Quarterly Bulletin. 7  Currently the Bank also offers at its discretion the option of a drawing of up to 364-days, for an additional fee. 8  Although counterparties are not guaranteed an allocation in these auctions, they are able to bid up for liquidity, increasing their chances of being allocated. BIS central bankers’ speeches  monetary  framework”,  3  DWF is structured as a liquidity upgrade, the fees charged are linked to the type and liquidity of collateral delivered. The more illiquid the collateral, the greater the value of the upgrade, and hence the higher the fee.
(If only a single firm needed support they could be directed to the DWF.) Consistent with all the Bank’s facilities, only firms judged to be solvent and viable would be eligible to participate. Subject to that, all counterparties that have access to DWF would be eligible to participate in any ECTR operations. Although the facility has been announced, the Bank has not yet offered any operations under the ECTR. That reflects our judgment that market conditions have not yet been consistent with a likely demand for its use. The Bank would revisit this decision in the event of any marked deterioration in market conditions. Conclusion In this speech today, I have set out some of the principles behind the Bank of England’s revised, permanent and public facilities for providing liquidity insurance to the banking system. We expect banks to self-insure for most of their liquidity needs – and while there has been encouraging progress to date, more is needed on that front. But if necessary, the Bank of England stands ready to provide support to solvent and viable institutions, against sufficiently good collateral, for an appropriate fee. It is important that commercial banks preposition their collateral so that due diligence can be performed and the maximum benefit achieved. The new Sterling Monetary Framework, which has been reformed almost in its entirety since 2007, reflects our experience during the crisis and lessons from some of the temporary measures that had to be put in place.