The Bank of England has published the annual report of its Alternative Liquidity Facility, the mechanism that provides emergency funding to banks and building societies that cannot access the Bank's standard liquidity operations because they lack sufficient eligible collateral.
The report shows that the facility was not activated during the 2025-26 financial year, continuing a pattern of non-use that has persisted since the facility was established. The Bank said this was consistent with its assessment that the financial system currently has adequate liquidity and that the facility exists as a backstop rather than a routine source of funding.
The facility is one of several mechanisms that the Bank maintains to ensure financial stability in a crisis. Its existence is designed to provide confidence that solvent institutions will not fail because of temporary liquidity problems, a confidence that is intended to prevent the kind of panic that can turn a liquidity problem into a solvency crisis.
The report notes that the Bank continues to review the facility's design to ensure it remains fit for purpose in a changing financial system. The growth of non-bank financial intermediation, which now accounts for approximately half of global financial assets, has raised questions about whether the existing liquidity framework, which is focused on banks, is adequate to address the risks in the broader financial system.
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