Keywords
commercial bills; bills of exchange; Bank of England; eligibility; bank liquidity; Basel 3; Liquidity Coverage Ratio; overfunding; monetary targets; macroprudential policy; risk‑free asset; government securities
Abstract
The paper describes the use of commercial bills in Bank of England open-market operations from the earliest days of central banking in the 19th century, when, it is suggested, the Bank of England’s main objective was what would now be called macro-prudential, until the 1980s, when commercial bill purchases were an essential feature of contemporary anti-inflationary policy. It explores the relationship between government securities, central bank assets and bank liquidity regulation, exposes as a myth the belief that government securities are perfectly safe assets, and challenges the idea that central banks should confine their asset holdings to government securities. In addition, the paper argues that by making more active use of the policy instrument of central bank asset choice, by acknowledging the connection between liquidity regulation and open-market operations, and by making certain changes to the Basel 3 Liquidity Coverage Ratio regulations, central banks could both better achieve some of their macro-prudential policy objectives and stimulate high-quality bank lending.
Acknowledgments
Based on a paper presented at the Round Table of the European Central Bank Committee on Financial Integration, 7th July 2014. I am grateful to Bernhard Winkler, Hans-Helmut Kotz and other participants in the Round Table, to Richhild Moessner and to an anonymous referee, for extremely helpful comments on earlier versions. I am also grateful to Edward Nelson, Clifford Smout and John Whittaker for useful discussions on the subject matter. None of them is responsible for the views expressed in the paper, or for the paper’s shortcomings.
Recommended Citation
Allen, W. A. (2024). Asset choice in British central banking history, the myth of the safe asset, and bank regulation. Journal of Banking and Financial Economics, 2015(4), 18-31. https://doi.org/10.7172/2353-6845.jbfe.2015.2.2
First Page
18
Last Page
31
Page Count
14
Received Date
University of Warsaw
Revised Date
28 January 2015
Accept Date
21 May 2015
Online Available Date
2 June 2015
DOI
10.7172/2353-6845.jbfe.2015.2.2
JEL Code
E52; E58
Publisher
2 June 2015