UK finance ministry to boost Bank of England's capital

LONDON, June 21 (Reuters) - Britain's finance ministry said on Thursday it will pay the Bank of England 1.2 billion pounds ($1.59 billion) to boost the central bank's capital to a new 3.5 billion pound target and let it take full responsibility for its Term Funding Scheme.

"The commitment of a capital injection of 1.2 billion pounds before the end of the 2018/19 financial year ... will enable the Bank to take the Term Funding Scheme on balance sheet without an indemnity from the Treasury," BoE Governor Mark Carney said in a letter to finance minister Philip Hammond.

The 127 billion pound TFS was introduced in 2016 to keep credit flowing after shock Brexit vote, so banks could pass on an interest rate cut at the time to consumers and businesses quickly.

The move comes as part of a broader overhaul of the financial relationship between the finance ministry and the BoE (Shenzhen: 000725.SZ - news) .

Hammond said the transfer of cash to the BoE would not affect the public finances, as the BoE is a public-sector body.

For more details, see: https://bit.ly/2McJg50 ($1 = 0.7550 pounds) (Reporting by Andy Bruce, editing by David Milliken)