Collateral eligibility expanded, haircuts revised for SMF

The Bank of England is broadening the range of debt eligible as Level B collateral within the Sterling Monetary Framework from 19 June 2026.

This includes bonds issued by G10 and Australian regional and local governments, as well as development and policy banks, provided they meet a high credit quality (broadly AA-) and the Bank's settlement requirements.

Concurrently, the minimum credit rating for G10 Government guaranteed agency bonds, alongside securities from Freddie Mac, Fannie Mae, and the Federal Home Loan Banks System, is being updated from broadly AAA to broadly AA-.

For corporate bonds, the Bank confirms all eligible instruments will now be classified solely as Level B collateral, removing the Level C distinction.

Furthermore, bonds from corporates generating revenue from thermal coal mining will no longer be eligible, effective 31 October 2026.

The Bank introduces new index-linked haircut schedules for eligible sovereign bonds, including gilts, effective 19 June 2026.

This ensures haircuts align with the Bank's risk tolerance, enhancing stability in firms' drawing capacity.

Corporate bond haircut methodology is also revised, reducing base haircuts.

To address net-zero transition risks, haircut add-ons will apply to bonds from issuers in relevant sectors.

These new corporate bond haircuts and add-ons come into effect from 31 October 2026.

A new interactive online form will launch at the end of June 2026, simplifying the eligibility request process for Asset-Backed Securities and Covered Bonds by reducing information requirements.