The Bank of England published a Market Notice on 11 June 2026 that amended the rules governing collateral that banks and other counterparties may post in operations under the Sterling Monetary Framework.
The notice, issued as the Bank moves to a repo-led, demand-driven framework for supplying reserves, extends Level B eligibility from 19 June 2026 to high-quality (broadly AA- or better) bonds of G10 and Australian regional and local governments and development or policy banks; lowers the minimum rating for G10 government-guaranteed agency, Fannie Mae, Freddie Mac and Federal Home Loan Bank securities from broadly AAA to broadly AA-; classifies all eligible corporate bonds as Level B and excludes issuers that earn revenue from thermal coal mining from 31 October 2026; introduces separate index-linked haircut schedules for sovereign bonds from 19 June; will launch a simpler eligibility request form for asset-backed securities and covered bonds at the end of June; and, from 31 October, will lower base corporate bond haircuts under a revised methodology while applying add-ons to issuers in sectors exposed to net-zero transition risks.
FRAMEWORK PURPOSE AND SCOPE
The Sterling Monetary Framework provides the operational plumbing through which the Bank of England implements monetary policy and supplies liquidity to the sterling market. The Bank said the changes support the transition to a repo-led, demand-driven operating framework for supplying central bank reserves and were in part motivated by feedback on the related Discussion Paper.
In its Market Notice, the Bank described adjustments to that eligibility framework, which affect the universe of assets counterparties may present in market operations. The notice covers collateral eligibility, the process for requesting eligibility for asset-backed securities and covered bonds, and changes to haircuts; the Bank said it does not normally announce haircut changes via Market Notice but included them given the broader changes to its operating framework.
MARKET IMPLICATIONS AND COUNTERPARTY MANAGEMENT
The Bank said the separate index-linked haircut schedules ensure haircuts for conventional and index-linked sovereign collateral meet its risk tolerance across the economic cycle, which has the benefit of providing stability in drawing capacity for firms.
The Bank said documentation on its eligible collateral web page would be updated as each change takes effect, and that participants should consult the SMF Documentation, including relevant Market Notices, for a complete guide to eligible collateral.
The new request form for asset-backed securities and covered bonds will replace the current ABS-CERT template and reduce the amount of information requested, with no change to overall transparency requirements, the Bank said.
The Bank said the thermal coal exclusion was consistent with the approach taken in its previous Corporate Bond Purchase Scheme, and that all other eligibility criteria for corporate bonds remain the same.
The Bank reserved the right to apply additional haircuts to any individual security at any time, including on collateral delivered in an outstanding transaction.
Sources: Bank of England