United Kingdom: Indexed Long-Term Repo Operations

Before the Global Financial Crisis of 2007-09, the Bank of England regularly used monthly Long-Term Repo (LTR) operations at a range of maturities to manage its balance sheet. As market liquidity tightened in late 2007, the Bank introduced the Extended Collateral Long-Term Repo (ELTR) program to lend larger amounts of sterling cash against a wider set of collateral at three-month maturities. In June 2010, the Bank replaced the ELTRs with the Indexed Long-Term Repo (ILTR) program to make the wider set of collateral a permanent part of its toolkit. The ILTR operations auctioned liquidity at three- and six-month maturities against an expanded set of collateral and at cheaper rates than the ELTRs. The Bank designed the ILTRs as a multi-good auction, a new technique that had the advantages of auctioning liquidity against specific levels of collateral that varied in quality. According to officials at the Bank, this is a unique innovation in liquidity provision. Counterparties could submit bids against a "narrow" set of collateral, a "wider" set, or both in a "paired" bid. In times of stress, the ILTRs automatically allocate a greater proportion of liquidity against less-liquid collateral. All successful bidders paid the lowest accepted bid on each collateral set. In 2014, the Bank made changes to the ILTR operations by standardizing the maturity offered, introducing a variable liquidity supply, expanding the collateral, and recalibrating to yield lower prices. The new ILTR operations respond to market-wide stress by lending a greater proportion of funds against less-liquid collateral and an increased amount of overall liquidity due to the lack of a fixed supply.