The Bank of England has published a market notice setting out changes to the collateral that is eligible for use in its sterling monetary framework, the operational mechanism through which the Bank provides liquidity to the banking system and implements its monetary policy decisions.
The changes, which will take effect from September 2026, expand the range of assets that banks can use as collateral when borrowing from the Bank. The most significant change is the inclusion of certain types of private sector debt securities, including bonds issued by non-financial companies that meet specified credit quality criteria.
The Bank said the changes were designed to ensure that its operational framework remained effective as the financial system evolved. The growth of non-bank finance and the declining stock of government bonds held by the private sector — a consequence of the Bank's quantitative easing programme — have reduced the availability of the traditional forms of collateral that the Bank has accepted. The changes are intended to address that scarcity.
The Bank emphasised that the changes did not represent a relaxation of its collateral standards. The new forms of collateral will be subject to haircuts — deductions from their market value — that reflect their risk characteristics, and the Bank will apply the same risk management standards to the new collateral as it does to existing forms. The Bank said it would monitor the use of the new collateral and would adjust its terms if necessary to protect its balance sheet.
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