Boozing in the Bank of England

Getting hammered in a central bank is an experience reserved only for the financial elite. The idea of proles like you or I knocking back drinks in such ivory towers borders on heresy.

But believe it or not, the Public Accounts Committee (PAC), a select committee of MPs which oversees government expenditure, wanted to open a Wetherspoons in the Bank of England (BoE). The PAC was eager to rent the vast stone fortress out, having discovered there’s 800 vacant desks within it.

Threadneedle Street is prime real estate. In what’s known as the Cantillon Effect, those closest to the printing press can profit the most from it. And how much closer to the money flow can you get, but inside the central bank itself? The establishment of a pub in the BoE (name suggestion: The Brown Bottom) would no doubt be a trophy pub of Wetherspoons (£JDW). Hell, I’d go there all the time.

But alas, The Brown Bottom is not to be. It seems the MPs overlooked the fact that there’s £140 billion in solid gold bars in the vault of the bank. Drunks atop a gold vault: what could possibly go wrong? Quite a lot, thought Bradley Fried, who chairs the Court of the BoE and objected to the proposal on the basis of security.

Not that this deterred Meg Hillier, Labour MP for Hackney South and Shoreditch and the chair of the PAC. So keen on a watering hole in the City was she, that she suggested the bank empty its vaults, and transfer the hundreds of tonnes of gold to a cheaper location. All to “maximise income from Threadneedle Street”.

The security of the gold took priority over Hillier’s watering hole (thankfully). The BoE will be filling the vacant desks with employees from another headquarters and rent that property out instead.

As it stands, the closest bar to the BoE is The Arbitrager, a tiny bar that gets rammed with parched souls at rush hour. I’ve been there a couple of times with Akhil Patel, the editor of Cycles, Trends and Forecasts, who, coincidentally, I’ll need to ask about this whole affair. Where in the grand land cycle do governments start getting imaginative to extract extra rent? And what comes next?

Security risks aside, I must admit I’m a little disappointed we won’t be getting a ‘spoons in the BoE. Just imagine if they put in a glass floor so you could see all the gold bars below while drinking a golden ale… But I digress.

Gold freeze

It’s not just the PAC who wants the gold bars out of the vaults and moved to a cheaper location. The Venezuelan government has £910 million of gold on deposit in the BoE’s vaults, and wants to withdraw it. But the BoE has denied its request, and is holding on to the gold, thanks to pressure from the US.

From Bloomberg:

Nicolas Maduro’s embattled Venezuelan regime, desperate to hold onto the dwindling cash pile it has abroad, was stymied in its bid to pull $1.2 billion worth of gold out of the Bank of England, according to people familiar with the matter.

The Bank of England’s decision to deny Maduro officials’ withdrawal request comes after top U.S. officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, lobbied their U.K. counterparts to help cut off the regime from its overseas assets, according to one of the people, who asked not to be identified.

… Central bank officials in Caracas have been ordered to no longer try contacting the Bank of England. These central bankers have been told that Bank of England staffers will not respond to them, citing compliance reasons, said a Venezuelan official, who asked not to be identified.

Moral of the story: don’t let politically pliable institutions hold your assets.

This does not bode well for the BoE long term. Playing politics with Washington, making itself a judge of who gets access to its own property, does not inspire confidence from other nations, who may well now consider pulling their own gold out from beneath Threadneedle Street.

But the BoE has other problems too. Besides the above, Brexit, and the Italian problem, it’s just realised there’s even more risky debt out there than it thought.
This is from Friday, emphasis its own:

Focus on leveraged lending as a potential source of financial stability risks has intensified recently.

But measuring the size of the leveraged loan market is complicated: there is no consistent definition of what a leveraged loan is.

The most commonly cited estimate of the market uses a figure of around US$1.3 trillion. This is the value of loans in indices that are used to track performance of the leveraged loan market. We think this underplays the true size of market…

We estimate that there is more than US$2.2 trillion in leveraged loans outstanding worldwide. This is larger than the most commonly cited estimate and comparable to US subprime before the crisis.

And that’s not the only “material risk” it’s identified. One particular rabbit hole begins in Switzerland, but it’s set to cause an earthquake across the whole of Europe.
I imagine alcohol consumption, in line with blood pressure, is higher than average at the BoE these days. Perhaps building a pub inside wasn’t such a bad idea after all.

Until next time,

Boaz Shoshan
Editor, Capital & Conflict

Category: Central Banks

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