Bank consults on wider collateral for emergency liquidity

LONDON (Reuters) - The Bank of England said on Wednesday it will seek views on widening the collateral it accepts from financial institutions wishing to use its discount window facility for short-term liquidity to include "raw loans."

The central bank also said it is planning to ask institutions to disclose more information on asset backed securities and covered bonds -- a requirement it hopes to adopt from 2011. The discount window facility allows financial institutions to borrow gilts from the Bank for 30 or 364 days to improve their liquidity and against a wide range of collateral and in return for a fee. The central bank is consulting on whether to include portfolios of loans as collateral for the facility. It currently only accepts loans from banks and building societies that they have securitised. By extending eligibility to raw loans, the Bank is looking to ensure that in stressed circumstances the main assets of commercial banks would be eligible for use as collateral in the DWF without the need for securitisation, the Bank said. "These proposals are designed to further enhance the Bank's facilities for providing short-term liquidity insurance to counterparties, thereby underpinning confidence in the financial system, and to help the Bank manage the collateral it holds more efficiently through greater transparency," said Paul Fisher, the Bank's executive director for markets.