Sunday, November 30, 2008

the explosive growth of the Bank of England balance sheet

First, an apology; I should have looked at the Bank of England balance sheet, but I haven't bothered for about six months. While I was looking elsewhere, the balance sheet exploded.

The explosion took place during the five weeks between September 10 and October 22nd. During that period, BoE assets went from about ₤90 billion to almost ₤300 billion, an increase of about 14 percent of GDP. It has fallen back slightly more recently, but the total still stands at ₤263 billion.

So what is happening? The Bank of England went from being a central bank to the interbank market. It is taking deposits and other short term liabilities from commercial banks and then lending it back to the banks short of liquidity.

These operations are just one more example of how sick the UK financial system has become. Without the direct support of the Bank of England, it would collapse.


  1. Alice

    Please look at this. For once something intelligent from me !

    My friend often quotes land registry in his arguments with me about falling house prices.

  2. Ah yes, but the 'balance sheet total' is not net assets - the other half of that £250 billion is commercial banks depositing money with BoE rather than lending it to each other (which i believe you have covered before).

    The BoE is just an intermediary here.

    @ EK, HMLR figures for a month are much the same as Nationwide's figures for two months before. It's just a delay thing. Either excluding repo's and auctions doesn't distort the figures much, or perhaps Nationwide don't lend on properties bought at auction either?

  3. Here in the US, the Fed has done the same thing. Instead of buying and selling Treasuries to create money supply, they're buying toxic debt like crazy with dollars they make out of thin air.

  4. BTW, did you see Tanta just died yesterday. The US's best housing blogger IMHO.

    Post is here, and condolences comments.

  5. Alice, great post because the BoE is doing much the same as the Fed.

    See my post:

    And Nick, I am sorry to hear about Tanta. That is very sad news.