LONDON The Bank of England published its first quarterly bulletin of 2013 on Thursday, including a chapter on how its asset purchase programme may eventually lead to losses that will need to be met by the government.
Here is a summary of the articles contained in the 93-page document.
For the full bulletin, click on
CHANGES TO THE BANK OF ENGLAND
This article reviews the new framework that will come into force in April and which will result in the bank gaining significant new responsibilities. The article also looks at revised governance processes that are being put in place to ensure the bank carries out its new responsibilities transparently and is accountable to parliament and the public.
CASH TRANSFERS BETWEEN BOE'S APF AND TREASURY COFFERS
The Bank has bought 375 billion pounds ($560 billion) of bonds through its Asset Purchase Facility (APF), which is fully indemnified by the government. Initially, it was envisaged that payments would be settled when the scheme ended. But on November 9, 2012 it was agreed to set up a process for quarterly transfers between the fund and the Treasury.
Initial transfers have benefited government coffers but the article notes that future flows are more likely to be in the opposite direction.
How big these cash transfers are remains uncertain, and will depend both on the path of interest rates and the price at which the assets are sold. The article concludes that gross transfers from the Treasury to the Bank could range from 20 billion to 75 billion pounds.
PRIVATE EQUITY AND FINANCIAL STABILITY
This article looks at the dramatic rise in acquisitions of UK companies by private equity funds since the mid-2000s. The leverage on many of these buyouts was high and the increased indebtedness of such companies could make the corporate sector more susceptible to default.
Since the financial crisis began, there has been some evidence of loans to private equity sponsored firms performing poorly, but a complete picture will not become clear until private equity funds have exited more investments.
The article concludes that, from a macroprudential policy perspective, it will be important to monitor the use of debt in acquisitions in the future.
COMMERCIAL PROPERTY AND FINANCIAL STABILITY
This article documents some of the main developments in the commercial property market and explores the behaviour of its key players. It concludes that it will be important that the BoE's Financial Policy Committee consider these factors when assessing the risks that the commercial property market can pose to the stability of the financial system.
COMPANY VISITS BY BOE AGENTS
This article looks at the data compiled by the central bank's agents who collect intelligence from the businesses across the country.
Since 2007, the bank's agents have been assigning company visit scores based on the 5,500 bilateral meetings that they have with individual UK firms every year.
This article looks at how these scores are used for internal analysis at the Bank including analysis of trends in employment and capacity utilisation.
Information collected by the bank's agents is confidential and all analysis in this article is based on aggregated and anonymised data.
BOE'S BANK LIABILITIES SURVEY
The Bank began conducting a survey of banks' liabilities in 2012 and will publish the first results from this survey on March 26.
It explores the reasons for launching this new survey and describes its design and coverage, including details of the questions asked. ($1 = 0.6700 British pounds)
(Reporting by Christina Fincher; Editing by Ruth Pitchford)