Assets sold to the bank by commercial banks

Matthew Cooper made this Freedom of Information request to Bank of England

This request has been closed to new correspondence from the public body. Contact us if you think it ought be re-opened.

The request was successful.

Dear Bank of England,

Could you tell me if the Bank of England holds any assets sold to them by private commercial banks and if they do could you tell me what makes up most of these assets.

Secondly I would like to know whether each time a commercial bank makes a loan to a customer, that banks reserves with the Bank of England go up? Otherwise, how does the commercial bank obtain all the banknotes needed to provide the customers with the facility of being able to withdraw their deposits that were created through the loans?

Yours faithfully,

Matthew Cooper

Enquiries, Bank of England

We acknowledge receipt of your e-mail dated 18 August (our ref FF 24389).

We will reply in due course.

If you have any queries please contact the Bank's Public Information and Enquiries Group on 020 7601 4878.

Public Information & Enquiries Group
Bank of England |Threadneedle Street|London|EC2R 8AH|+44 20 7601 4878
[Bank of England request email]

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Enquiries, Bank of England

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Dear Mr Cooper

Please find attached a letter in response to your request of 18 August.

Yours sincerely

Public Information and Enquiries Group

Bank of England | Threadneedle Street | London | EC2R 8AH | +44 20 7601
4878

[1][Bank of England request email]

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Dear Enquiries,

Thanks for your reply.

I will clarify my question for you.

It is my understanding that for transactions to take place between commercial banks they must have reserve accounts at the BoE and for example when a cheque is drawn the reserve account of the payor's bank is debited and the reserve account of the payee's is credited by the BoE. These transactions are offset on the commercial banks books by debiting the payor's bank account and crediting the payee's account respectively.

It is also my understanding that these reserves with the BoE can be exchanged for bank notes and that is how the banks get notes to put in their ATMs.

MY QUESTION is this: How do the commercial banks get their BoE reserve accounts increased in order to have more banknotes and reserves to leverage to cover depositors demands for notes and credit? Do these banks sell assets to the BoE in exchange for credits to their reserve accounts?

Yours sincerely,

Matthew Cooper

Enquiries, Bank of England

Dear Mr Cooper

We acknowledge receipt of your email dated 4 September (our ref FF
24427).  We will reply in due course.

If you have any queries please contact the Bank's Public Information and
Enquiries Group on 020 7601 4878.

Public Information and Enquiries Group

Bank of England | Threadneedle Street | London | EC2R 8AH | +44 20 7601
4878

[1][Bank of England request email]

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Dear Enquiries,

You have not replied within the time period allowed by the Freedom of Information Act.

If you do not reply within five days, I will take your silence to be an acceptance that commercial banks sell loan documents to BoE in exchange for credit to their accounts

Yours sincerely,

Matthew Cooper

Dear Bank of England,

This is a notice of fault and opportunity to cure. You have not replied within the time period set forth by the FOI act and the additional time period expressed by me in the previous post, and I said that failure to respond by today, 5 days from the previous post, would constitute acceptance that the commercial banks sell loan documents to the BoE in exchange for credits to their reserve accounts with the bank.

I am going to give the BoE another THREE DAYS to respond, if they have any argument against the fact put forth above. Failure to respond in this time period WILL constitute acceptance and admittance that the BoE buys loan documents from commercial banks in exchange for credits to said banks reserve accounts.

Yours faithfully,

Matthew Cooper

Enquiries, Bank of England

1 Attachment

Dear Mr Cooper

Please find attached a response to your email dated 4 September below.

Yours sincerely

Public Information & Enquiries Group
Bank of England |Threadneedle Street|London|EC2R 8AH|+44 (0)20 7601 4878
[Bank of England request email]

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Dear Enquiries,

You seem to not be answering my question directly - it is my understanding that for loan customers to withdraw money or transfer it by cheque or direct debit, the commercial bank must have central bank money or base money available to clear transactions and enable depositors to withdraw money.

I understand that one of the BoE's jobs is to ensure that there is enough central bank money available for transactions to take place.

However, in order to obtain new central bank money, do commercial banks ever sell loan securities to the BoE?

Yours sincerely,

Matthew Cooper

Enquiries, Bank of England

We acknowledge receipt of your e-mail dated 23 September (our ref FF 24489).

We will reply in due course.

If you have any queries please contact the Bank's Public Information and Enquiries Group on 020 7601 4878.

Public Information & Enquiries Group
Bank of England |Threadneedle Street|London|EC2R 8AH|+44 20 7601 4878
[Bank of England request email]

show quoted sections

Enquiries, Bank of England

1 Attachment

Dear Mr Cooper

Please find attached a response to your email dated 23 September below.

Yours sincerely

Public Information & Enquiries Group
Bank of England |Threadneedle Street|London|EC2R 8AH|+44 (0)20 7601 4878
[Bank of England request email]

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Dear Enquiries,

Thank you very much for your help. It is my understanding that when banks sell securities to the BoE the BoE buys them by crediting their reserve accounts, and these securities are paid for with money that didn't previously exist, therefore adding new central bank money to the economy. The booklet 'Quantitative Easing Explained' describes how new money is added to the economy in this way: by purchases of securities.

Yours sincerely,

Matthew Cooper