1  Such liquidity may be secured against a wide range of collateral, building on the collateral eligible in Sterling 2  Monetary Framework operations. The Bank’s objective would be to provide liquidity in sterling or foreign currency as required, in the necessary scale and for a sufficient period of time to allow the firm to make the transition to market-based funding. The terms would be set in a way designed to support the effectiveness of the resolution regime, incentivise the transition of the firm back to market-based funding, and protect public money. Confidence in the regime for the resolution of international banks is of crucial importance to the UK. We are home to a number of major international banking groups. But equally, if not more important, we are host to a very large number of foreign banks, many of which have sizeable wholesale market operations in the UK. As the leading international financial centre, we import considerable risks from other jurisdictions. It is therefore crucial to financial stability in the UK that we can rely on foreign banks operating in our jurisdiction having viable resolution strategies in line with international standards. Absent such assurance, we would need to ensure the entities operating here have greater resilience locally. Non bank resolution  It was the failure of systemic banks in the crisis that exposed the lack of an effective resolution regime.
It would be hard to avoid the country misunderstanding that any such commitment was conditional on the outlook; in other words that our plans could and would change as the outlook changed. And the current strategy has been consistent with a mildly upward-sloping money-market curve, which signals that the market is confident – as it should be – that the MPC will retighten monetary conditions when in due course that is warranted by the medium-term outlook for inflation. Our 2% target is a valuable anchor in shaping and implementing our strategy. In this, insurance companies are by no means on the sidelines. By focusing our purchases on medium and long-maturity gilts, we are aiming in part to shift the composition of the portfolios of long-term investment institutions. And it was encouraging, therefore, that the money holdings of non-bank financial institutions expanded recently. Some economists argue that gilts and central bank money are near perfect substitutes, so that the effect of our Quantitative Easing will be negligible. They may well be close substitutes for traders. But I doubt they are perfect substitutes for insurance companies and pension funds, many of which probably don’t participate in the secured deposit “repo” markets for switching gilts into cash; and which in any case desire assets with a longer “interest-rate duration” than money. If so, holding zero-yielding money balances will not suit them, and we could reasonably hope for increased demand for, perhaps, corporate bonds and other financial assets. Risk premia might decline slightly.