This Explanatory Note summarises the motivation for, and approach to, expanding the Bank’s financial stability toolkit. As a first step in this work, the Bank is developing the Contingent NBFI Repo Facility, which will allow eligible pension funds, insurance companies and liability-driven investment funds to borrow cash against gilts at times of severe gilt market dysfunction.
This provisional Market Notice sets out the expected design for a new financial stability tool – the Contingent NBFI Repo Facility – that the Bank of England intends to invite applications for later this year. The Bank is expanding its toolkit to intervene where severe liquidity-related dysfunction in gilt markets threatens financial stability, by developing a facility that will allow eligible Non-Bank Financial Institutions (NBFIs) to borrow cash against gilts at times of severe gilt market dysfunction.
We document novel survey-based facts about preferred long-run inflation rates among US consumers. Consumers on average prefer a 0.20% annual inflation rate, well below the Federal Reserve’s 2% target. Inflation preferences not only correlate with demographic and socioeconomic characteristics, but also with economic reasoning. A randomized control trial reveals that two narratives based on economic models—describing how inflation lowers the real value of wages and money holdings—affect inflation preferences.
We study the importance of information technology (IT) in banking for entrepreneurship. Guided by a parsimonious model, we establish that job creation by young rms is stronger in US counties more exposed to banks with greater IT adoption. We present evidence consistent with banks' IT adoption spurring entrepreneurship through a collateral channel: entrepreneurship increases by more in IT-exposed counties when house prices rise. Further analysis suggests that IT improves banks' ability to determine collateral values, in particular when collateral appraisal is more complex.
We study the sensitivity of the realised LGD to macroeconomic conditions by exploring Global Credit’s confidential dataset on observed cash flows from defaulted loans. Given the prolonged duration of loan recovery, spanning several years, and the potential for macroeconomic fluctuations during this time frame, our study explores whether the sensitivity of realised LGD to macroeconomic conditions varies based on the timing of cash flows.
Households differ considerably in terms of the inflation they experience at any point in time. The main reasons for this are that prices (and thus price changes) differ from place to place and that households do not all buy the same products. Households adjust their purchases over time, but not enough to offset these differences.
See the headline results from an April 2024 survey of 27 financial institutions that are active in the UK foreign exchange market.
Benjamin Knox and Jakob Ahm SørensenWe develop a theory that connects insurance prices, insurance companies’ investment behavior, and equilibrium asset prices. Consistent with the model’s predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurers set lower prices on policies when expected investment returns are higher, both in the cross-section of insurance companies and in the time series.
Baris Kaymak and Immo SchottThere is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies.
The Bank's Court of Directors acts as a unitary board, setting the organisation's strategy and budget and taking key decisions on resourcing and appointments. Required to meet a minimum seven times per year, it has five executive members from the Bank and up to nine non-executive members.
