What operation of the Bank of England allows banks to borrow at the bank rate plus or minus 25 basis points?

The operation of the Bank of England that allows banks to borrow at the bank rate plus or minus 25 basis points is known as the Standing Facility. This facility is designed to provide liquidity to banks, ensuring they can manage short-term funding needs while promoting stability in the financial system. When banks find themselves in a situation where they need to borrow, they can access this facility, which facilitates their ability to maintain operations without facing liquidity shortages.

The Standing Facility operates by allowing banks to deposit funds and borrow funds at rates that are closely tied to the official Bank Rate, thereby influencing short-term interest rates in the economy. This mechanism helps to stabilize the banking system by providing a safety net for banks, ensuring they have access to necessary funds in times of need. The range of plus or minus 25 basis points around the bank rate enables banks to have a predictable cost of borrowing while encouraging the maintenance of reserves.

This function is crucial for managing liquidity, especially during periods of market stress or uncertainty. Overall, the Standing Facility serves as an essential tool for monetary policy implementation and financial stability, making it a key feature of the Bank of England's operations.