Vol 6 (2009) - Issue 2

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UK Government's 2009 Initiatives Continue to Support the UK Financial System

In early 2009, the UK government initiated a series of financial measures to address the ongoing credit and liquidity crisis affecting the UK. These measures supplement a number of measures taken by the UK government in 2008 to bolster the domestic economy, including establishing Her Majesty’s Treasury ('HM Treasury') 2008 Credit Guarantee Scheme (the 'Treasury Credit Guarantee') and the Bank of England’s discount window facility (the 'Discount Window Facility'). The government has made it clear that increasing lending and confidence in the UK banking sector and enhancing the ability of financial institutions to accommodate the credit needs of businesses, homeowners and consumers is essential for paving the road to economic recovery in the UK.

HM Treasury announced on 19 January 2009 that the government would implement a comprehensive package of support to strengthen the UK financial system, including:

- extending the window for issuing new debt under the Treasury Credit Guarantee;

- creating a new commercial paper asset purchase facility (the 'CP Purchase Facility');

- creating a new corporate bond secondary market purchase facility (the 'Corporate Bond Purchase Facility');

- creating a new facility for the purchase of securities guaranteed under the Treasury Credit Guarantee (the 'Guaranteed Bond Purchase Facility');

- creation of a new facility for the purchase of assetbacked securities ('ABS') and syndicated loans (the 'ABS Purchase Facility' and, together with the CP Purchase Facility, the Corporate Bond Purchase Facility and the Guaranteed Bond Purchase Facility, the 'Purchase Facilities');

- establishing a new UK government guarantee programme covering qualifying ABS (the 'New Guarantee Programme');

- establishing a new capital and asset protection programme that covers specific assets 'most affected' by the current market climate (the 'CAP Programme'); and

- extending the term of the Bank of England’s Discount Window Facility.

The new Purchase Facilities

Following up on the HM Treasury announcement, the Bank of England established the new Purchase Facilities to help facilitate short-term and longer-term corporate funding in the UK markets.

The Chancellor of the Exchequer and the Governor of the Bank of England documented a working framework for the Purchase Facilities on 29 January 2009, wherein the Bank of England was authorised to purchase, through a wholly owned subsidiary fund (the 'Fund'), up to GBP 50,000,000,000 of qualifying assets.

CP Purchase Facility

The CP Purchase Facility was formally announced on 6 February 2009, and it enables qualifying UK-incorporated companies (including their finance subsidiaries and those with foreign-incorporated parents) to sell eligible commercial paper to the Fund. To participate in the programme, the company must satisfy the Bank of England that it makes a 'material contribution' to the economic activity in the UK. Companies that do not currently issue commercial paper are not prohibited from accessing the CP Purchase Facility if they otherwise satisfy the eligibility criteria. However, leveraged investment vehicles cannot access the CP Purchase Facility.