The Contingent Term Repo Facility

As a response to the impact of Covid-19 on money markets at a UK and global level, the Bank of England (the “BoE”) announced that it is activating the Contingent Term Repo Facility (the “CTRF”), which is a temporary enhancement to its existing sterling liquidity insurance facilities. 

The CTRF

  • The CTRF was established in 2014 (replacing the Extended Collateral Term Repo facility) and can be activated by the BoE in response to any actual or prospective market-wide event in order to respond to market stress flexibly. 
  • The CTRF is a liquidity insurance tool that allows participants to borrow central bank reserves (cash) in all major currencies in exchange for collateral (less liquid assets). The BoE states that it will accept collateral of sufficient quality and quantity to protect itself from counterparty credit risk. According to the operations guide and the BoE’s market notice, participants can post collateral assets of Level A (e.g. sovereign bonds), Level B (e.g. private sector debt) or Level C (e.g. securitisation assets) subject to applicable haircuts to receive cash under the CTRF. 
  • Prevailing market conditions are taken into account when setting the terms of the CTRF and therefore participants are able to borrow central bank reserves for a term of three months. 
  • Participants in the Sterling Monetary Framework are eligible to participate in the BoE’s liquidity insurance facilities (i.e. banks and building societies that are signed up to the Bank’s Discount Window Facility (DWF). 
Activating the CTRF for Covid-19
  • On 24 March, the BoE announced that it will be holding additional CTRF operations as a complementary measure to its existing liquidity facilities. 
  • The purpose of the CTRF is to provide market participants with predictable and reliable sources of funding and reduce the cost of disruption to critical services.
  • CTRF operations will run on 26 March 2020 and 2 April 2020, in addition to the BoE’s regular liquidity insurance facilities including the Indexed Long-Term Repo (ILTR) and Discount Window Facility (DWF).
  • The CTRF will provide funding for a period of three months, which will allow participants to use the CTRF as a way to bridge beyond the point at which drawings under the TFSME can be made, in order to help the real economy as quickly as possible. 
  • The BoE will keep the operation of the CTRF under review. Further operations will be announced as required, based on demand and market feedback.
  • The size of the CTRF operations will be unlimited, and the price will be a fixed rate of Bank Rate plus 15bps.
  • A maximum of 1 bid will be accepted from a single participant. The BoE reserves the right to reject bids in its sole discretion and for any reason. The minimum bid size will be £5 million, with increments of £1 million.