BOE’s Bailey Confirms Central Bank Profits from Emergency Bond Purchases

Bank of England Governor Andrew Bailey and other central bank officials are speaking on the central bank’s response to the market mayhem that occurred last autumn.

Among the highlights so far, Bailey said UK insurance reforms pose risks to policyholders. He also said profit from emergency bond buying will benefit the treasury.

Bailey:  UK Insurance Reforms Pose Risks to Policymakers

The British government’s proposed changes to insurance sector capital rules present a risk to policyholders but not to the wider financial system, Bank of England (BOE) Governor Andrew Bailey said on Monday, and Reuters reported.

“I don’t think that it’s likely, all things equal, that it’s a risk to financial stability, but it is a risk to policyholders,” Bailey told parliament’s Treasury Select Committee.

Reuters also reported that Bailey said the BOE had not agreed to accept the government’s proposals on insurance capital rules in return for the government withdrawing plans to give itself powers to veto decisions by financial regulators. Bailey said he would not consider that sort of “trade”.

Bailey: Profit from Emergency Bond Buying Will Benefit Treasury

BOE Governor Andrew Bailey confirmed on Monday that the profit made from the central bank’s emergency bond purchases last year will benefit the UK Treasury.

The buying was triggered to stabilize the gilt market after the crisis spurred by then-Prime Minister Liz Truss’s budget program in September. The BOE said last week the bonds have all been sold, booking a profit of about 3.5 billion British Pounds, according to Bloomberg.

“The relevant cash flows associated with the portfolio, including profits realized on the sales, have been incorporated into the usual quarterly cash transfer process between the APF and HM Treasury,” Bailey wrote in a letter to the UK Treasury released Monday.

Bailey also added “the loan from the Bank to the APF, used to fund these temporary purchases, will be repaid today.”

Bailey:  Truss Risk Premium on UK Assets is ‘Gone’

Finally, BOE Governor Bailey said the risk premium on UK assets since September is “pretty much gone” but that confidence remains fragile.

“It’s going to take some time to convince people that we’re back to normal,” Bailey told the Treasury Committee in the Parliament on Monday.

“International partners will understand that we’re back to where we were, things have restored to normal.”