US and UK asset purchase programmes
12 December 2011
(Extract from page 74 of BIS Quarterly Review, December 2011)
Since late 2008, a number of central banks have established asset purchase programmes in order to improve financial conditions, revive credit flows and stimulate economic activity. The purchases have been concentrated in government securities and related assets.
The US Federal Reserve announced its Large-Scale Asset Purchase (LSAP) programme on 25 November 2008, with purchases of up to $600 billion in agency mortgage-backed securities (MBS) and agency debt. In March 2009, the Federal Open Market Committee expanded the LSAP with an additional $850 billion in purchases of agency securities and another $300 billion in purchases of longer-term Treasury securities. The announced total amount of $1.75 trillion represented 14.5% of the combined outstanding Treasury and agency securities, which stood at around $12 trillion at the beginning of the LSAP. The operations (LSAP1), which were extended to March 2010, became known as Quantitative Easing 1. As the recovery faltered, the Federal Reserve put in place LSAP2 in November 2010, which consisted of further purchases of $600 billion in longerterm Treasury securities until mid-2011.
On 21 September 2011, the Federal Reserve announced a new maturity extension programme (MEP). Under the programme, by the end of June 2012 the Fed would buy $400 billion in Treasury securities with remaining maturities of six to 30 years, while selling an equal amount of Treasuries with remaining maturities of three months to three years.
The Bank of England established an Asset Purchase Facility (APF) Fund in January 2009 to buy high-quality assets to improve liquidity in credit markets.1 Initially, it committed £75 billion to purchase bonds with residual maturity between five and 25 years. This was raised to £125 billion in May, £175 billion in August and £200 billion in November 2009 (APF1). By February 2010, the purchases of gilts amounted to £198 billion, which was about 29% of the free float gilt market. On 6 October 2011, the Bank decided to expand the APF by a further £75 billion to £275 billion (APF2).
1 Benford et al (2009) and Cross et al (2010) provide detailed accounts of the APF, and Joyce et al (2010) estimate the impact of the asset purchases on financial markets.