BOE advances repo-led framework, boosts liquidity facilities
The Bank of England's latest report details the ongoing transition to a demand-driven, repo-led framework for central bank reserves, covering March 2025 to February 2026. The Bank observed increased usage of its market-wide and bilateral liquidity facilities.
Reserves drain and repo surge
Over the review period, the Bank of England continued its transition towards a demand-driven, repo-led framework for supplying central bank reserves.
This shift is progressing as expected, with many participants routinely engaging in market-wide repo operations.
The total stock of UK central bank reserves decreased by £63.2 billion, falling from £706.7 billion to £643.5 billion between March 2025 and February 2026.
This reduction was primarily driven by the sale and maturity of gilts held in the Asset Purchase Facility (APF), alongside repayments from the Term Funding Scheme with additional incentives for SMEs (TFSME).
Usage of the Short-Term Repo (STR) facility significantly increased, with outstanding drawings rising from £50.3 billion to £97.0 billion.
Similarly, the Indexed Long-Term Repo (ILTR) saw outstanding drawings climb from £9.5 billion to £69.9 billion, with 79 firms participating by February 2026.
These developments underscore the Bank's strategic move to a more active, market-based liquidity management approach, ensuring short-term money market rate stability even as reserves become less abundant.
Enhanced access and modernized infrastructure
Complementing its market-wide operations, the Bank has strengthened its bilateral facilities by reducing pricing for both the Operational Standing Facility (OSF) and the Discount Window Facility (DWF).
In December 2025, the OSF deposit remuneration was recalibrated to 0.15% below Bank Rate, and OSF lending pricing to 0.15% above Bank Rate.
The DWF saw a simplification and reduction in pricing in March 2026, enhancing its usability for unexpected liquidity needs.
Furthermore, the Bank expanded its Alternative Liquidity Facility (ALF) in July 2025, increasing its size from £200 million to £550 million to support UK banks facing restrictions on interest-bearing activity.
Average aggregate ALF deposits reached £531 million by February 2026.
Efforts to modernize infrastructure and processes, including improved collateral procedures and the introduction of a new Sterling Markets Auction and Repo Trading System (SMARTS), are further enhancing participants' interactions with the Bank.
SMF membership remained robust, with 221 participants by February 2026, and 14 existing participants broadening their access to additional facilities.
Framework solidifies, vigilance remains
This report confirms the Bank of England's successful navigation of a complex transition, demonstrating effective control over short-term market rates amidst significant balance sheet adjustments.
The increased uptake of repo facilities and the recalibration of bilateral tools signal a robust, demand-driven framework taking root.
However, the persistent need for such extensive liquidity provisions, coupled with ongoing infrastructure modernization, underscores the continuous adaptation required in dynamic financial markets.