Bank of England governor Mark Carney offered an olive branch to the City when he said properly managed and regulated banks would be able to secure more help at lower cost from Threadneedle Street if they got into financial trouble.
Seeking to draw a line under what has often been a strained relationship, Carney said that he wanted to be the friend of banks provided they were resilient and prepared to submit to tougher supervision.
The governor announced new measures aimed at ensuring that a bank in difficulties could secure sufficient working capital – or liquidity – to keep it going. Carney said the Bank would offer money over longer periods, accept a wider range of collateral and charge lower fees.
He added: "There has been a loss of confidence in banks and in the system. Institutions need to get their culture and core values right." Carney said it was striking that "loathing" of banks had replaced confidence in them.
Threadneedle Street was strongly criticised by the City for its hardline approach to providing help in the early days of the financial crisis and Carney said his changes were the results of a review by Bill Winters carried out under his predecessor Lord Mervyn King.
"Five simple words describe our approach: we are open for business," Carney said in a speech to mark the 125th anniversary of the Financial Times.
The governor added that the return of City supervision to Threadneedle Street and the international reforms put in place since the crisis meant it was possible for the Bank of England to relax exacting liquidity standards.
"The Bank of England today is the friend of resilient banks, continuous markets, and good collateral; and we are the enemy of taxpayer bailouts, fragile markets and financial instability," he said.
"Our facilities are not ornamental. They are there to be used by banks to access money and high-quality collateral. We are offering money and collateral for longer terms. The range of assets we will accept in exchange will be wider, extending to raw loans and, in fact, any asset of which we are capable of assessing the risks. And using our facilities will be cheaper. In some cases the fees are being more than halved."
UK banks were highly critical of the approach adopted by King in the early days of the financial crisis, when he expressed fears that providing too much help to banks in trouble would create a problem of moral hazard, encouraging the bad practices that had led to problems in the first place.
Carney said: "Banks can be confident that, when they want to use our facilities, they will be allowed to access them. Because we are both the supervisor and the central bank, the strong presumption is now that, if a bank meets the supervisory threshold conditions to operate and has signed up to our framework, it will be able to use our facilities.
"Our Discount Window will be open every day for those firms requiring a bespoke facility with lagged disclosure. Its price will be lower. We will hold monthly repo auctions to provide predictable and regular access to high-quality collateral in exchange for a very broad range of collateral. And in times of actual or prospective stressed conditions we stand ready to provide cheap, plentiful money through more frequent auctions."
The governor insisted that financial institutions would not be excused from managing their balance sheets prudently. Individual banks would have to keep more of their assets in liquid form in order that the Bank of England's facilities could be less stringent and more effective.
"The UK's financial sector can be both a global good and a national asset – if it is resilient. It is not for the Bank of England to decide how big the financial sector should be. Our job is to ensure that it is safe. The UK can host a large and expanding financial sector safely, if we implement a reform agenda that extends well beyond domestic banking," Carney said.
"The Bank of England's task is to ensure that the UK can host a large and expanding financial sector in a way that promotes financial stability. Only then can it be both a global good and a national asset."
Asked if Britain had turned the corner, Carney said: "One reason to think there could be some traction in the recovery is that the core of the financial system has got a lot better."
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