The Bank of England issued a press release yesterday on its plans to buy £10 billion of corporate bonds as part of the latest QE programme. Let me leave aside the advisability of doing that right now and instead focus on how they are going to identify the bonds they wish to purchase. On this they say:
To maximise the effectiveness and efficiency of the economic stimulus, we will purchase investment-grade bonds issued by companies that make a material contribution to economic activity in the UK. Companies, which may be incorporated in the UK or other jurisdictions, with a genuine business in the UK will normally be regarded as meeting this requirement. Eligibility decisions will be made by our risk management staff, taking into account a number of different factors. Companies with significant employment in the UK or with their headquarters in the UK will normally be regarded as meeting this requirement. We will also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
These criteria are needed because a wide range of companies issue sterling corporate bonds. Some of those companies are UK incorporated and have substantial business in the UK. Bonds issued by those companies will be eligible for purchase in the CBPS. Other companies are incorporated overseas, but have a genuine business interest in the UK. For example, a company headquartered outside of the UK but employing hundreds of people in the UK and generating sales of £20m in the UK would be considered to make a material contribution to the UK economy. As a result, investment-grade bonds issued by such a company would normally be considered eligible for purchase.
To put it bluntly, the bank is buying British. And to be as blunt, although they do not say it as clearly as they might, identifying who meets that criteria is not that easy to do. There is one very simple explanation for this: we do not have public country-by-country reporting.
If we did have CBCR all multinational corporations would have to publish all the data that the Bank of England needs to make its decisions. This is not by chance: country-by-country reporting was designed to show precisely what the true scale of economic activity that a company had in a country might be. The criteria I used are remarkably (and unsurprisingly) similar to those that the Bank are suggesting: sales, number of people, scale of investment. But they will have to work quite hard to find that information in most cases right now simply because it is not readily available, if it is available at all. There is no legal requirement that it be published and in the case of foreign owned parent companies with a number of subsidiaries in the UK there is no requirement that they produce a consolidated UK result so that we know the true scale of their activity in this country.
In that case the Bank happens to have provided a perfect reason for public country-by-country reporting: investors need it. Now, when will we supply it?