In the media recently, there has been a lot of news about the Co-Operative Bank, and a whole in the balance sheet. This was down to the level of PIBS issued by the Co-Operative Bank, and level of interest having to be paid, and also loans at the bank turning sour. (Thus issuing PIBS to raise cash, the cash used to create loans, the loans then go bad, the bank then has a problem).

However PIBS offer a great source of income for fixed income investors like pension funds, pensioners etc etc. The interest rate (yield) can be very generous, over 7% !

PIBS, are issued by mutual building societies, like Nationwide and Yorkshire Building Society as simple examples.

Nationwide [http://www.nationwide.co.uk/popup/pibs_registrars.htm]

10 funding programmes at Nationwide:

∑ (£200,000,000 + £100,000,000 + £400,000,000 + £350,000,000 + £60,000,000 + £125,000,000 + £60,000,000 + £80,000,000 + £10,000,000 + £30,000,000) = £1,415,000,000 = £1.415 Billion

Yorkshire [http://www.ybs.co.uk/your_society/treasury/documents/PIBS_Prospectus_0603.pdf]

£150,000,000 @ 5.649 %.

What this is, another form of funding for the financial institution. It gives them the ability to raise more finance, to meet the demands from customers for loans and mortgages.It is a form of wholesale funding, borrowing on the fixed income market place.