. in addition, as part of the bank ’ s desire to ensure that commercial banks are adequately incentivised to seek their own liquidity insurance, the cost of borrowing increases with the size of the draw. the resulting matrix of fees is summarised in table 1. table 1 fee table for dwf drawings of gilts fees ( bps ) % of sterling eligible liabilities 0 - 10 % collateral type level a level b level c level d ( e. g. high quality ( e. g. liquid and ( e. g. illiquid ( e. g. own - name sovereign debt ) high quality transferable securitisations mortgage and securitised loans and covered corporate bonds ) and mortgages ) bonds, and loans ) 10 - 20 % 20 - 30 % > 30 % at the bank ’ s discretion there is one further important point to make regarding the policy decisions underpinning the design of the dwf. it relates to the challenges associated with providing liquidity support while not compromising the bank of england ’ s ability to conduct monetary policy. to implement interest rate decisions, the bank must, through its market operations, adjust the supply of central bank money in response to changes in the demand for banknotes and reserves, given the mpc ’ s policy rate ( bank rate ). during periods of stress there may be large shifts in the demand for reserves and so the bank ’ s market operations need to be designed to meet both our monetary policy and financial stability objectives without conflict. in normal times, bank rate is set within a reserves averaging framework, in which commercial banks choose their own targets for reserves balances held at the bank but are then required to meet those targets on average over the monthly maintenance period and are remunerated at bank rate. the bank of england supplies just enough cash to the system so that banks can collectively meet their targets, and a combination of the operational standing facilities and the inter - bank market should guide short - term market interest rates towards bank rate. this framework relies on the bank ensuring the amount of sterling cash in the system is in line with that demanded, given bank rate. the liquidity swap structure of the dwf does not involve an extra injection of cash and so helps to avoid any direct impact on the setting of bank rate. the bank may, however, decide in exceptional circumstances, to lend cash instead. that might be required if, for example, the gilt repo market was

. conclusion in this speech today, i have set out some of the principles behind the bank of england ’ s revised, permanent and public facilities for providing liquidity insurance to the banking system. we expect banks to self - insure for most of their liquidity needs – and while there has been encouraging progress to date, more is needed on that front. but if necessary, the bank of england stands ready to provide support to solvent and viable institutions, against sufficiently good collateral, for an appropriate fee. it is important that commercial banks preposition their collateral so that due diligence can be performed and the maximum benefit achieved. the new sterling monetary framework, which has been reformed almost in its entirety since 2007, reflects our experience during the crisis and lessons from some of the temporary measures that had to be put in place. doubtless the framework will continue to evolve in future, but the provision of such published facilities should help to make the system more resilient in the years to come. bis central bankers ’ speeches