Paul Tucker: The repertoire of official sector interventions in the financial
system - last resort lending, market-making, and capital
Remarks by Mr Paul Tucker, Deputy Governor, Financial Stability, of the Bank of England, at
the Bank of Japan 2009 International Conference "Financial System and Monetary Policy:
Implementation", Bank of Japan, Tokyo, 27-28 May 2009.
* * *
Everything - and I mean everything - about central banking stems from our liabilities being
the base money of the economy. From this flow our roles in monetary policy and financial
stability. And, in consequence, the manner in which central banks supply our money -
overnight, intra-day, and for term maturities; in routine and in various stressed circumstances
- just could not matter more, even if much of the time it seems like an obscure corner of the
financial system's plumbing.
About half a decade ago, I set out the thinking that underpins the Bank of England's
management of our balance sheet, focusing principally on the implementation of monetary
policy.1 Today I want to explain how, over the past eighteen months, we have developed our
system for providing liquidity insurance to banks in the interests of preserving financial
stability; and how that bears on the prudential regulation of banks' liquidity. From that
discussion of LOLR as Bagehot would have recognised it2, I shall go on to air some
developing thinking about two other instruments available to the authorities to address
financial system distress: Market Maker of Last Resort, and Capital of Last Resort.
The implementation of monetary policy in stressed conditions
Most of the time, central bank operations revolve around the implementation of monetary
policy. For the Bank of England, in routine circumstances that means, of course, establishing
overnight money market interest rates in line with the Monetary Policy Committee's policy
rate (Bank Rate). It is vital that we should be able to achieve that primary rate-setting
Objective in stressed conditions, as well as in peacetime.
Since mid-decade, the reserves part of the Bank of England's operational framework has,
accordingly, made explicit provision for three broad types of contingency: a bank finding itself
temporarily short of reserves at the end of the banking day due to technical problems or
frictions in the money markets; a widespread shock to the sector's demand for reserves; and,
thirdly, a pronounced shift in the degree to which banks collectively find themselves needing
to manage their reserves directly with the Bank rather than via the money markets. To cater
for those eventualities, banks can, first, borrow unlimited amounts overnight against the
highest-quality collateral, for a modest premium of 25 basis points, designed to leave intact
incentives to manage liquidity in the markets rather than with us. Second, banks can
increase the size of the precautionary balances or buffer they hold with the Bank by altering
their reserves targets in our voluntary reserves system.3 And, third, in the face of, say, a
9/11-type event that disrupted the financial infrastructure and effectively closed the money
markets, the Bank could temporarily substitute itself for the markets by allowing banks to
borrow from, and deposit with, us at no charge relative to Bank Rate.4
Beyond monetary policy
All of those contingencies involve events affecting either the demand for reserves or their
distribution around the system. And the measures designed to cope with them are therefore
part and parcel of the Bank's management of the banking system's day-to-day sterling
liquidity in the course of implementing monetary policy. Of course, that is helpful to - indeed,
is a necessary condition for - the maintenance of financial stability. Most obviously, during
the current crisis banks chose to more than double their targets for reserves balances with
the Bank in the months following August 2007, and we injected the required increase in
money into the system. That was necessary to keep overnight rates broadly in line with Bank
Rate; and it was also necessary, although not sufficient, to stabilise the short-term money
markets and the banking system. But, as the past 18 months or so have demonstrated,
contingency plans centred on managing reserves by no means exhaust the range of market
operations and facilities available to central banks to reduce the economic costs of severe
disruptions to the financial system.
While not explicitly directed to managing day-to-day monetary conditions, those wider
measures absolutely must, nevertheless, be constructed to be consistent with, and
supportive of, monetary policy.
Financial stability and commercial banks
How best to construct those facilities turns in part on how we think about financial stability,
and so I should probably be clear about the definition of financial stability I employ. It is
largely to do with money and the role of the banking system in a monetary economy.
Monetary policy is, of course, directed to ensuring stability in the value of central bank money
relative to goods and services. Analogously, in significant degree financial stability is about
safeguarding the stability of private money (deposits held by households and firms with the
banking system) relative to central bank money. Depositors with banks have to be confident
that they can exchange their deposits at face value for our money - our notes; or that they
can smoothly transfer their deposits to other banks where they could be confident of that.
Those two formulations amount to much the same thing, as transfers between banks are
settled across our books in central bank money, the economy's ultimate settlement asset.5
At
the level of the system, we need an "exchange rate" of unity between private money and
central bank money. And we need wholesale funders of banks to be confident of that too.
Absent that stability and confidence, the payments system and credit creation become
severely disrupted, with big social costs.
Of course, banks are not the only lenders in our economies. The current crisis owes a lot to
the non-bank financial sector - funds, conduits, SIVs, securities dealers, and so on. But the
excessive leverage and maturity transformation in the shadow banking system was in
general predicated on the plentiful availability of credit on too-easy terms from the
commercial banking system. Up to a point, the same goes for the abundant liquidity in asset
markets that preceded the crisis. Of course, persistently strong demand for financial assets -
crudely, rising prices - created liquidity. But, beyond that, the willingness and terms on which
"market-makers" and traders underpinned liquidity depended on generous access to credit
for financing inventory and positions. And the ultimate private sector providers of such credit
are always the commercial banks.6
So commercial banks are special. They are special because their deposit liabilities are
money. But they are also inherently fragile. First, as monetary institutions, the liquidity
insurance they provide, via demand deposits and committed on-demand lines of credit,
entails large mismatches between the maturities of their liabilities and assets (actual and
contingent). The accompanying conversion of liquid savings into illiquid loans to households
and firms benefits society. But it also exposes the banks to big liquidity risks. Given a first
come-first served system of redemption for retail and wholesale deposits, that creates the
risk of runs. Secondly, a deposit-taking institution is leveraged, even if it does not fund itself
in wholesale markets: retail deposits are debt. So banks' capital adequacy can quickly be
imperilled by a fall in asset prices. In that sense, the "liquidity" and "solvency" explanations of
the current crisis are inseparable. Especially in a world in which banks' trading portfolios are
marked to market, a drying up of liquidity in markets brings about a fall in asset prices, and
so a depletion of banks' net worth. All that underlines just why our predecessors placed such
great weight on official interventions to maintain the safety and soundness of banks.7 If
anyone doubted it, this crisis underlines how problems of funding liquidity, asset-market
liquidity and solvency are intertwined. And those dimensions of a systemic crisis map into the
authorities' capability, in principle, to be a Lender of Last Resort; a Market Maker of Last
Resort; and a provider of Capital of Last Resort.
Central bank provision of liquidity insurance, and LOLR
Bagehot's famous dictum, in Lombard Street, was that, to avert panic, central banks should
lend early and freely (ie without limit), to solvent firms, against good collateral, and at "high
rates". One of his great themes was that the Bank of England should acknowledge its role in
stemming panics, and set out its principles for doing so: "The Bank has never laid down any
clear or sound policy on the subject."8
Over the past fifteen years or so, including during the current crisis, the Bank of England has
taken steps to make the Bank's principles clearer.9 Most recently, we have also addressed
6
For example, see Brunnermeier M K and Pedersen L H (2008), "Market Liquidity and Funding Liquidity", The
Society for Financial Studies, Oxford University Press.
7
Bank supervision has its origins not in consumer protection but in preserving stability (and protecting the
central bank against risks incurred through its open market operations and discount window lending). This was
evident in the remarks, just over twenty years ago, of George Blunden, the Bank's then Deputy Governor and,
a decade earlier, the founding Chairman of the Basel Committee: "Supervisory standards are set not only with
an eye to what is required to protect depositors with individual institutions, looked at in the narrow context of
their own operations, but also with an eye to protecting them from problems which could be created by wider,
systemic, developments. A bank may consider a course of action it wishes to take to be acceptable - as it
may well be in a limited context. But the same course might, if widely copied by other banks, have unfortunate
effects on the banking system as a whole. It is part of the supervisors' job to take that wider, systemic view
and sometimes to curb practices which even prudent banks might, if left to themselves, regard as safe." See,
Blunden G, "Supervision and Central Banking", Bank of England Quarterly Bulletin, August 1987.
8
Page 206 of the 1999 paperback reprint of Bagehot (1873), "Lombard Street" in the Wiley Investment Classics
series.
9
For example, see Eddie George's 1993 lecture "The pursuit of financial stability"; Mervyn King's September
2007 letter to the Treasury Select Committee, "Turmoil in financial markets: what can central banks do?"; and,
most recently, the document on the Bank's liquidity insurance facilities, "The Development of the Bank of
BIS Review 67/2009
some difficult issues around the transparency of collateral policy, and about how to avoid
incentivising imprudent liquidity management.
The time-consistency problem and collateral policy
Like so much in central banking, time-consistency is at the centre of it.
That a time-consistency problem can bedevil monetary policy is well known10, and motivates
an institutional framework in which independent central banks have clear mandates for
fighting inflation. Much less is said about what might be equally serious time-consistency
problems in the sphere of financial stability. They can be especially apparent in central
banks' collateral policy.
Given banks' incomplete cover against their maturity mismatch, central banks have long
stood ready to "discount" - or lend against the collateral of - certain assets in unlimited
amounts. But central banks have also long been worried that, left to themselves, banks will
try to avoid holding the best-quality, most liquid assets, because they yield less.
If, in an attempt to induce banks to hold truly liquid assets, the central bank were to declare
that it would lend against only the highest-quality collateral, the banking system would know
that those assets could be converted into money in all circumstances. But if an otherwise
solvent bank gets into trouble and still faces a liquidity problem after taking all of its eligible
high-quality assets to the central bank, the authorities face a choice between letting it fail
through a lack of liquidity or lending against a wider class of assets. Their choice will turn on
an assessment of the trade off between, on the one hand, the risk of financial instability
today that could flow from immediate bank failures and, on the other hand, the risk of
financial instability in the future that may flow from the central bank being seen to protect
11
banks from their mistakes. If during peacetime a bank judges that its failure would be likely
to cause widespread systemic distress, it will probably conclude that the central bank's
collateral policy will, during wartime, be relaxed, leading it to choose to hold less of the
highest-quality eligible assets than otherwise. Crucially, the central bank may then, after all,
not be able to stick to its declared collateral policy, just as the bank suspected. In other
words, a central bank policy of lending against only the best assets is likely to prove time
inconsistent when it comes to the crunch.
This is not an ivory tower problem. It is a real problem.
It is why the Bank of England confirmed last year that we do stand ready, via our public
facilities, to lend against a wide range of collateral, subject crucially to appropriate haircuts
and other terms. To do otherwise would be futile; it would lack credibility. And to do so is
consistent with Bagehot's dictum that central banks should lend against "everything which in
common times is good 'banking security' ".12
The Bank has already published an initial list of collateral eligible in its dedicated
liquidityinsurance facilities. Looking ahead, the Bank plans to expand the list, and to promulgate
detailed eligibility criteria reflecting its risk tolerance and experience gained from managing
assets and collateral. In doing so, the Bank recognises that its decisions will have a bearing
on the development of markets. For example, for securitised assets, the Bank plans in due
course to establish criteria for both the structure of the securitisations and the composition of
the underlying portfolios that it will lend against.
The Bank's Discount Window Facility and wider-collateral OMOs: adverse incentives
and the terms of liquidity insurance
These expansions of the Bank of England's facilities have required us to be much clearer
than, perhaps, ever before about the terms on which we insure against liquidity risk.
As with other types of insurance, without care central banks' provision of insurance could
inadvertently have the perverse effect of reducing banks' incentives to contain their
exposures to liquidity risk in the first place - no doubt bringing the banks temporarily higher
profits, but increasing the potential costs to the wider economy of those liquidity risks
crystallising. For broadly similar reasons, we have had to think hard about how to protect the
Bank against excessive risk (via eligibility criteria, haircuts, price etc).
The principles that underpin the design of the Bank's facilities, set out last October, are
basically as follows:
•
They should absolutely not cut across, and should ideally support, monetary policy.
•
Crucially, the terms of such liquidity insurance should balance its benefits against the
costs of creating incentives for banks to take more liquidity risk than otherwise.
•
The Bank should be, and is, prepared to lend against a wide class of collateral
subject to applying appropriate haircuts, and provided that we are capable of valuing
it and of managing it in the event of a counterparty default. (One of the great
problems in our capital markets is that too many firms forgot that collateral and
haircuts matter only when a counterparty defaults.)
•
Such lending against wider collateral should be for term maturities, as lending in
stressed circumstances for only very short maturities creates rollover risk and so may
be ineffective in forestalling panic.
•
Liquidity-insurance facilities that are permanently available should be delivered via
secured loans (repo or collateral swaps) rather than outright purchases, as during the
life of a loan we can update the collateral margins and other terms that control the
risk to the Bank.
•
Permanent facilities providing bilateral liquidity insurance should be made available
only to commercial banks, as they unavoidably need such insurance given that their
liabilities are money and the vital role they play, as monetary institutions, in the
economy and the financial system. (Private-sector institutions seeking to offer
monetary (deposit) services should be regulated as banks.13)
•
Such public facilities should not be available to banks where in the judgment of the
Bank there are serious question-marks over their viability or solvency. (That need not
exhaust our menu for providing liquidity to individual firms. It is of course open to us
to offer that via bespoke support operations.14)
Consistent with those Design Principles, during the current crisis we added to the Bank of
England's Sterling Monetary Framework two instruments that are explicitly designed to help
contain financial system stress, by providing financing against securities that may become
illiquid in stressed conditions:
•
A Discount Window Facility (DWF) making available to commercial banks collateral
swaps in which the Bank can lend UK government securities in exchange for a wide
range of eligible collateral.
• Long-term repos (LTRs) via which the Bank lends cash against collateral comprising
a range of high-quality securities going beyond the sovereign securities routinely
eligible in the Bank's short-term repo operations.
For the Bank's short-term repos, eligible collateral has not been widened: it remains
essentially high-quality government bonds. That is because the purpose of the weekly
shortterm OMOs is to manage the Bank's net supply of reserves rather than to provide broader
liquidity insurance.
Liquidity insurance and monetary policy
The two new facilities differ from each other in so far as the long-term repos (LTRs) are for a
total size determined by the Bank, whereas drawings from the Discount Window Facility are
for amounts determined by individual counterparties; and in that the Bank lends cash via the
LTRs, whereas we would usually lend securities via the DWF. That affects their interaction
with monetary policy. In the case of the DWF, we lend securities (gilts) that are eligible in our
OMOs, so they can be turned into cash either in the market or via our repo operations. But,
in its usual mode of operation, the DWF does not directly affect the Bank's aggregate supply
of reserves.15 Indirectly, it may even reduce the demand for reserves, as it gives sound
banks a source of liquidity insurance separate from holding precautionary balances with the
Bank.
By contrast, the wider-collateral LTR OMOs do inject reserves. For a given monthly reserves
target, that means that, other things being equal, the Bank has to reduce the size of its
weekly short-term OMOs, in order to ensure that its net supply of reserves is equal to the
target; otherwise overnight rates would sink below the MPC's policy rate. But when, as
during the current crisis, the scale of wider-collateral repos is massively increased, reducing
short-term repos to zero is not always enough to achieve our monetary objective. The Bank
of England has therefore introduced the sale, via auction, of very short-term Bank of England
bills to drain excess (ie above target) reserves from the market. That has enabled us to make
a very significant (order of magnitude) discretionary increase in our cash-liquidity insurance
without cutting across monetary policy. (In my view that is preferable, on technical and
presentational grounds, to draining the market by HMG depositing with the Bank the
proceeds of increased Treasury issuance, which could be confused with deficit-financing
operations.) In economic terms, the net effect for the system in aggregate is to inject
reserves against wider-collateral up to some targeted level consistent with monetary policy,
together with a further collateral swap of Bank bills against wider-collateral. But the structure
employed has distributional benefits too.
Haircuts
Consistency with monetary policy is one constraint on our provision of liquidity insurance.
Controlling our risk is another. For its loan (repo and swap) operations, the Bank uses
valuations,16 haircuts and daily remargining to leave financial risk with its counterparties.
Haircuts can be based on past volatility and on scenario or stress analysis. We increase
haircuts for own-name securities, where a market price can no longer be observed, or
sometimes in the light of the particular circumstances of individual counterparties. Consistent
with its role as central bank, the Bank aims thereby to unbundle liquidity risk from credit and
valuation risk. And that means we do not, and could not, lend 100% of our valuation of the
collateral, which is a constraint on the scale of the liquidity insurance we provide.
Haircuts are kept under review, and the Bank reserves the right to alter them, including on
outstanding transactions. Looking ahead, the Bank aims to take into account structural and
cyclical changes in financial conditions. In the future, the Bank might, for example, increase
haircuts during "peacetime" if liquidity in the secondary market from a particular type of
collateral became impaired; or if the Bank concluded that, as the upswing of a credit cycle
developed, risk was plausibly becoming underpriced and so was not properly reflected in the
valuations of instruments it was accepting as collateral. Whether or not that would be enough
of itself quell a cycle is obviously uncertain; but it would help to protect us against risk and
would give a signal.
In short, haircut policy matters.
Pricing
But the Bank does not believe that haircuts can be relied upon on their own to produce the
appropriate incentives for banks' liquidity management. Price matters too. Bagehot said that
the rate should be "high". But since he wrote in the context of the Gold Standard and of
domestic financial crises that were typically accompanied by external (or capital account)
crises, his notion of a "high rate" was bound up with the central bank tightening monetary
conditions to stem the outflows (of gold). But it is clear enough that, although he did not in
fact talk of "penalty" rates, the relevant measure for him was the rate charged by the central
bank relative to that prevailing in the market in normal conditions, ie before a crisis breaks.
The Bank has adopted, and promulgated, a fee structure for its liquidity-insurance facilities
that increases as banks' borrowing increases and/or is made against riskier, less liquid
collateral. That is designed to underpin incentives for banks to manage liquidity risk
prudently, in the long-run interests not only of the banking system but of the wider economy.
We have published a schedule for DWF pricing with those properties, structured around four
broad classes of collateral, grouped according to their liquidity/risk characteristics.17
We plan,
after consultation, to introduce an auction structure for the wider-collateral long-term repo
OMOs that delivers the same broad result of counterparties having to pay up to borrow
against less liquid collateral.18
16
The Bank published its general approach to collateral valuations when it disclosed use of the Special Liquidity
Scheme. It stated: "Securities are valued by the Bank using observed market prices that are independent and
routinely available publicly. The Bank reserves the right to use its own calculated prices, including where such
independent market prices are unavailable. Those calculated prices are designed to deliver valuations taking
account of securities' contracted cash flows and yields of comparable securities, but not individual
loan-byloan analysis of portfolios. To account for the risk that a calculated price is an over-estimate of what a market
price would have been had it existed, an additional haircut is added. The Bank's valuation of all securities is
binding." For more details, see the Market Notice for the Special Liquidity Scheme released on 21 April 2008.
www.bankofengland.co.uk/markets/sls/index.htm.
17
More information on the Discount Window Facility (DWF) can be found in the Bank's Market Notice, released
on 19 March 2009. www.bankofengland.co.uk/markets/money/discount/index.htm
18
In the auctions there would be separate stop-out rates for lending against liquid and less liquid collateral and
the proportion of the Bank's long-term lending allocated to the different types of collateral would be related to
the spread between the stop-out rates. A high proportion would be allocated to lending against less liquid
collateral only if, given the bids received, there was an appropriately large spread between the stop-out rates.
BIS Review 67/2009
Knowledge of the framework's pricing structure can be factored into banks' liquidity
management and contingency planning.
Mitigants for the "stigma problem"
But during the turmoil of the past eighteen or so months, around the world banks have at
times been reluctant to pay such "penalty" rates of interest for fear of signalling, if somehow
their use leaks or is revealed by a "witch hunt", that they have an idiosyncratic problem even
when they don't. During 2007 this became known as the "stigma problem",19 and it caused
standing lending facilities, a key piece of central bank machinery for providing overnight
liquidity to the payments system, to more or less atrophy in some centres during the first
phase of the crisis.
That state of affairs was not sustainable, and it prompted a number of central banks to
innovate. Auctions of funds against wider collateral of the kind introduced by the Fed and the
Bank of England side-step the stigma problem by having a number of banks borrow at the
same time. They have definitely helped to underpin the system. But, compared with a facility,
those auctions are available only periodically - fortnightly in the UK at present - rather than
every day. The DWF is available on a continuous basis, and is designed to avoid the stigma
problem. In particular, in its usual mode of operation, it involves a collateral swap, so there is
no give away of its being used in the size of either the banking system's reserves balances
or our open market operations. And we publish data on its use on an aggregate, averaged
basis and with a lag. This puts onto a permanent footing some of the technology of the
Bank's Special Liquidity Scheme, which was used in 2008 to provide 3-year financing, via a
collateral swap, for assets that had become illiquid as a result of the crisis.20
How the facilities can work in extremely stressed conditions
Monthly, wide-collateral repos for a 3-month maturity and typically of fairly modest size,
together with a continuously available Window for 30-day collateral swaps, are now
permanent features of the Bank of England's regime. Various parameters can be adapted in
the face of extremely stressed conditions of the kind we have been facing. Thus, the
widecollateral repos have been held fortnightly rather than monthly, and for very large sizes. And
the DWF currently offers a 12-month swap option, as well as the standard 30-day facility.
In summary, by providing liquidity insurance the Bank aims effectively to give essentially
sound banks and others time to address the problems created by stress, and for the
authorities to develop remedial plans, without creating perverse incentives or exposing itself
to risk. Given those aims, banks must avail themselves of these facilities. We believe, for
example, that all qualifying banks and building societies should sign up for the Discount
Window Facility; that they should pre-position with us a range of eligible collateral, so that
they avoid operational stumbles when they seek to use the Window; that they should use it
regularly in meaningful size as part of testing and making a reality of their contingency plans;
and that they should share those plans with the Bank, which, amongst other things, would
help us assess applications to draw. In that way, the DWF can truly help to underpin the
system's liquidity in the future.
Prudential regulation of banks' liquidity: how it relates to central bank liquidity
insurance
But such insurance is not and cannot be a source of longer-term funding to the banking
system. Prudent valuations and haircuts mean that our insurance cannot finance anything
like the whole of a bank's balance sheet even in the short run, and also that banks need a
clear buffer of surplus capital. Nor is central bank liquidity insurance always going to work.
That underlines why prudent liquidity management must be a major responsibility of the
banks themselves. In the normal course of their business, they should insure themselves
against liquidity risk in private markets. They can do so by, for example, holding a stock of
assets that can unquestionably be exchanged readily in the financial markets for cash in
anything other than the gravest market distress; by maintaining funding with a prudent
maturity structure relative to that of their assets and contingent commitments; and in the case
of smaller banks, up to a point by buying insurance in the form of completely committed lines
of credit from larger banks, but also crucially by holding unquestionably liquid assets in case
their bank-provider is ailing when they call on the line.21 Banks earn a return from providing
liquidity services, and so make a trade-off in deciding how much liquidity risk to run. But,
because of the spillover effects from bank failures, the overall social cost of banks' liquidity
risks crystallising can be considerably greater than the costs for the individual banks
themselves. Regulation by the micro-prudential authorities has been the primary tool for
dealing with that issue.
There is currently a very important, and long overdue, international debate about how to
improve the regulation of liquidity.
I want to dwell today on just one important element of this debate.
This concerns whether or not the assets counted by prudential regulators as part of a bank's
liquidity buffer should be defined to include all of the assets held by the bank that are eligible
in the operations/facilities of the central banks to which the bank has access. Some argue
that they should. The Bank of England would regard that as a big mistake.
For the reasons I have described, the collateral eligible at most central banks goes way
beyond securities that can be relied upon in stressed conditions to be liquid in private
markets (whether outright or repo). So if they all counted as core-liquidity for regulatory
purposes, banks would in effect be liberated from having to hold a buffer of low-yielding
assets that they could confidently use in the market
before they turned to us. That would be a
regime in which central banks would, in effect, be lender of second resort (ie as soon as
some markets closed up) rather than LOLR (broadly understood). The equilibrium would
surely be one in which less of banks' balance sheets were liquid in the markets than is
desirable; and in which the banking system in aggregate could run excess liquidity risk from
a systemic perspective. Haven't we seen the results of that already? Isn't the purpose of
regulatory standards to avoid that?
Our own favored approach is that the regulators should define the "liquidity buffer" to
comprise high-quality securities that can reliably be traded or exchanged in liquid markets,
including in stressed circumstances. In practice, that would mean focusing on government
bonds in many economies.22
That is the approach that the UK's Financial Services Authority will be adopting in due
course, after a number of years' discussion. We greatly welcome that outcome. Of course, in
the midst of the crisis, any such requirement has to be carefully transitioned, but the eventual
destination should be clear enough.
For such a policy to deliver its potential, it would be good if regulators, internationally,
required all banks regularly to turn over a meaningful share of their "stock liquidity" in the
market on a reasonably regular basis. That would also help to put banks in a position to reap
the benefits of the Bank's Discount