funding operations

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1 The replacement of short-term fixed-interest debt (floating debt) by long-term fixed-interest debt (funded debt). This is normally associated with the government's handling of the national debt through the operations of the Bank of England. The bank buys Treasury bills and replaces them with an equal amount of longer-term government bonds, thus lengthening the average maturity of government debt. This has the effect of tightening the monetary system, as Treasury bills are regarded by the commercial banks as liquid assets while bonds are not. See also overfunding.

2 A change in the capital gearing of a company, in which short-term debts, such as overdrafts, are replaced by longer-term debts, such as debentures.

Subjects: Financial Institutions and Services.

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