The LiFE is a testament to the commitment of central banks to cooperate to secure the stability of the system to the benefit of all our citizens. Liquidity facilities have not just been about firefighting. Given the constraints of the effective lower bound (ELB), lending facilities have been recast into stimulus tools. Drawing on the 3-year long-term refinancing operations (LTROs) launched by ECB the previous year, the Bank of England launched a Funding for Lending Scheme (FLS) in 2012, as the nascent recovery was threatened by a sharp rise in banks funding costs and subsequent tightening in credit conditions amid the euro-area crisis. The FLS combined four year funding with sharp incentives to support lending to households and businesses. Banks expanding lending were able to access the scheme for a 25bp fee, a sizeable discount to retail and market funding costs at the time, with higher fees, of up to 150bp, for those that were contracting their lending. Banks could access 5% of their initial stock of lending immediately and to provide a further incentive to lend this allocation was adjusted upward by the amount of their net lending in the 18 months following the launch of the scheme.9 Building on the experience of the FLS, the Bank launched a Term Funding Scheme (TFS) in August 2016 as part of a package of measures in response to the hit to confidence in the UK following the vote to leave the European Union.
7  9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  Chart 5: Households and businesses have consistently expected increases in interest rates to be gradual and limited Per cent 6  2014 Q1 Pre-crisis average level of Bank Rate (5.2%)  2015 Q1  5  2016 Q1 2017 Q1  4  2018 Q1 3  2019 Q1  2 1 0 0  1  2  3 Years ahead  4  5  6  The experience in the euro area and UK demonstrates how guidance can be effective in managing expectations as circumstances change. As intended, “limited and gradual” guidance has dampened interest rate volatility (Chart 6) and reduced the correlation between interest rate volatility and economic uncertainty (Chart 7). Both developments have increased the degree of monetary policy stimulus, thereby reinforcing the recovery during turbulent times. Chart 6: Interest rate volatility has remained low since guidance was provided Standard deviation of option-implied distributions for 3m Libor in 12 months' time, UK and US August 2013 guidance issued 3m US LIBOR (12m ahead)  Basis points 200 180 160  standard deviation February 2014 guidance issued  140 120  EU referendum  100 80 60 40  3m UK LIBOR (12m ahead) standard deviation  20 0  2000  2002  2004  2006  2008  2010  2012  2014  2016  2018  Sources: Bloomberg Finance L.P., Chicago Mercantile Exchange (CME), Intercontinental Exchange (ICE) and Bank calculations.