Date: 8 March 2023
Time: 1:20pm – 3pm | Location: Bank of England, 20 Moorgate London EC2R 6DA
Minutes
Item 1 – Welcome
The Chair thanked members for attending and confirmed that the minutes of the December 2022 meeting had been published on the Bank’s website.
The Chair welcomed new members and alternates. The Chair also welcomed those who were attending as part of the Bank’s Meeting Varied People (MVP) initiative.
Item 2 – Ratification of updated Committee Terms of Reference
Members had received a set of draft updated terms of reference prior to the meeting. These were ratified by the Committee.
The updates included reference to the Committee’s involvement in the Sector Response Framework (SRF), formalising the way in which the Committee could be called upon by the authorities in the event of a crisis or significant market event as a conduit for information sharing capacity.
The updated Terms of Reference also built further on the Committee’s commitment to ensuring the MMC is a diverse and inclusive forum the composition of which is representative of UK money markets.
Item 3 – Discussion on market conditions
A high level update was presented by a member of the Committee, focusing on a range of recent developments including the economic outlook in the UK and elsewhere.
The Committee discussed recent trends in money market fund assets under management, driven by factors including Liability Driven Investment (LDI) funds reducing excess cash positions accumulated in late 2022. This was resulting in a decrease in cash held in overnight markets and placing a degree of upward pressure on repo rates, although
Some members noted conditions had normalised more quickly than they had expected. However repo haircuts had increased in longer-dated bonds following the volatility experienced in September and October last year. Members highlighted that although there had been some normalisation, but relative volumes in bilateral trading remained elevated as participants have sought alternatives to using the cleared space.
Members also considered liquidity conditions both in the gilt market and globally. One member also highlighted how Value-at-Risk (VaR) models, which reflect increased levels of risk through periods of volatility, had reduced participants’ capacity to add risk following recent high volatility.
Item 4 – Discussion on potential extension to RTGS operating hours
Members of Bank staff provided an update on the ongoing RTGS renewal programme and upcoming work to consider appropriate operating hours for the future. Industry collaboration would be critical in this process and the Bank proposed engaging MMC members alongside the broader industry as part of its ‘co-creation’ process.
A key discussion topic was the potential impact of longer hours on liquidity management practices. Members highlighted that it was important to be cognisant of potential large flows during irregular hours and hence the additional business costs and liquidity buffers required as a result of this. In addition, members emphasised the need to evaluate the costs and benefits in conjunction with other market reforms, and to consult a wide group of sectors such as the buy side to ensure a smooth process and maximise market engagement.
It was agreed that the Committee would continue to receive updates on this process, and interested members were asked to volunteer contacts to explore in greater detail the impacts of a potential extension to the RTGS operating hours on market functioning, liquidity, and broader market conventions
Item 5 – Discussion on Central Bank Digital Currency
The Bank presented an update on its Consultation Paper (The digital pound: A new form of money for households and businesses? | Bank of England) on a possible future Central Bank Digital Currency (CBDC), covering its potential key characteristics, the Bank’s expected future roadmap for the digital pound, as well as its likely impact on the Bank’s balance sheet.
Members discussed some of the potential impacts of a CBDC on bank funding and money markets. Some members were concerned about the potential for such an asset to disintermediate retail deposit markets, with implications for financing of longer term lending in the economy and for financial stability. For example, in a low or negative interest rate environment, if a CBDC were to be a non-interest-bearing asset, there would be an incentive to use it as an alternative savings product. Others noted benefits of a stable digital asset in supporting new services to the economy.
Members were encouraged to coordinate within their institutions to provide views via the consultation process.
Item 6 – AOB
The FCA outlined its short selling review and T+1 settlement and asked the Committee to follow up via the Secretariat with any views.
Committee attendees
Gordon Lowson - Abrdn
James Winterton - Association of Corporate Treasurers
Michael Manna - Barclays Bank UK
Emma Cooper - Blackrock
Ben Meaden - BNY Mellon
Romain Dumas - Credit Suisse
Marije Verhelst - Euroclear
Inna Shaykevich - Goldman Sachs
James Murphy - HSBC
Chris Brown - Insight Investment
Olivia Maguire - J.P. Morgan Asset Management
Kim Hutchinson - J.P. Morgan Asset Management (presenter)
Tony Baldwin - LCH
Awah Tumban - LCH (MVP)
John Wherton - LGIM
Peter Left - Lloyds Bank
Nic Erevik - Newcastle Building Society
Nina Moylett - M&G
Avi Tillu - PIMCO
Chirag Patel - Rabobank
Alan Williams - Santander UK
Romain Sinclair - Soc Gen
Lynda Heywood - Tesco PLC
John Argent - Tradition
Jessica Pulay - DMO (Observer)
Alan Barnes - FCA (Observer)
Apologies
Victoria Worsfold - Guildford Borough Council
Ben Challice - J.P. Morgan
Ina Budh-Raja - Bank of New York Mellon
Marije Verhelst - Euroclear
Bank of England
Rhys Phillips (Chair)
Tom Horn
David Glanville
Grace Greer
Tom Archer
Paige Benattar (presenter)
Dovile Naktinyte (presenter)
India Rimmer (presenter)
Michael Yoganayagam (presenter)