Bank opens framework to smaller banks

LONDON (Reuters) - The Bank said on Monday it will give more banks access to its open market operations and deposit facilities to help smaller institutions better manage their liquidity.

The announcement comes in tandem with the Financial Services Authority's new rules on bank liquidity, and will help smaller institutions -- who normally hold cash balances with large commercial banks -- to minimise risk under the new capital adequacy rules by parking money with the central bank instead.

Analysts said the BoE's announcement held few implications for the gilt market, although gilts could benefit from the FSA rules in the short term as they carry zero risk under the new regime.

"This avoids a situation where smaller banks are starved of liquidity," said John Wraith, head of sterling rate product development at RBC CM.

Previously, only institutions with an average level of eligible liabilities of at least 500 million pounds could apply to hold a reserve account with the central bank and participate in its regular tenders, the BoE said.

"The Bank is widening eligibility to apply for access to Reserves Accounts in order to assist smaller institutions to manage their liquidity," the BoE said in a statement.

The liabilities which count towards the total a bank must have on its books to qualify to apply for a reserve account with the BoE include: deposits with a maturity of greater than two years, debt securities with a maturity of a maximum of five years, foreign currency liabilities and loans to other domestic banks.

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