Executive summary
The Bank’s mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.
The Bank’s sterling market operations, including – but not limited to – those delivered through the Sterling Monetary Framework (SMF), are conducted in support of our mission. These operations implement Monetary Policy Committee (MPC) decisions by transmitting Bank Rate and managing assets held via the Asset Purchase Facility (APF); and safeguard financial stability by providing deposit and lending facilities to eligible financial market participants. Operations are conducted across the Bank’s own balance sheet,footnote [1] and via subsidiaries.footnote [2] A diagram of the Bank’s market operations is provided below. Further detail on the Bank’s objectives, as well as a full list of the operations outlined in this report, can be found in the Bank’s Market Operations Guide.
Figure 1: The Bank’s market operations
The Bank is ‘open for business’. Our SMF facilities are there to be used by firms as part of their routine sterling liquidity management. Participant firms that meet regulatory threshold conditions for authorisation and have the appropriate collateral, have the flexibility to use our SMF facilities as and when they deem appropriate. Firms are not required to justify their decision to utilise facilities to the Bank or to the Prudential Regulation Authority (PRA). There is no specific or limited list of cases in which firms may use our facilities, and there is no fixed order in which we expect firms to use one form of liquidity over another. Further information for firms seeking to apply for access to our facilities is available at Information for applicants.
The Bank publishes a short, factual annual report covering key developments in facilities and their usage. In addition, every third year, the Bank publishes a more in-depth review of its market operations, allowing for a broader stocktake of developments. Following the broad review in 2024, this is a short report covering the period from March 2024 to end-February 2025. The structure of this report is as follows:
- Section 1 summarises SMF membership over the review period.
- Section 2 outlines the Bank’s deposit-taking activities, including the provision of reserves accounts.
- Section 3 outlines use of the Bank’s lending facilities over the review period, including key developments in these operations.
- Section 4 discusses the management of assets held within the Asset Purchase Facility.
- Section 5 summarises the Bank’s risk management framework, including key developments in this area.
This report also includes two boxes. These provide further information on topics that have been particularly notable during the reporting period: specifically, the transition towards a demand-driven, repo-led framework for supplying reserves, and the opening of the Contingent Non-Bank Financial Institution Repo Facility (CNRF) for applications.
1: SMF membership
Access to the Bank’s sterling market operations is open to a wide range of eligible financial firms.footnote [3] Firms that wish to use the Bank’s reserves accounts or liquidity facilities must sign-up to the Sterling Monetary Framework (SMF).
Interest in joining the SMF comes from a range of firms, including UK firms, as well as those headquartered abroad. Some are new firms, while others are existing SMF participants wishing to sign up for access to additional facilities (Chart 1).
At end-February 2025, 220 participants had access to one or more SMF facilities.footnote [4] During the review period, eight existing participants signed up for access to additional facilities, broadening the range of facilities available to them. The Bank continues to keep its SMF access policy under review. To find out more, see Information for applicants.
Chart 1: SMF membership
Footnotes
- Source: Bank of England.
2: Deposit-taking activities
2.1: Reserves accounts
Reserves accounts are sterling-denominated, instant access accounts offered to eligible financial firms that are held in our Real-Time Gross Settlement (RTGS) system. Reserves accounts are used to support the settlement of payments, making them a crucial part of the financial system. Reserves balances held by market participants make up the largest aspect of the Bank’s balance sheet.
The Bank implements the MPC’s interest rate decisions by applying Bank Rate to reserves balances. This keeps short-term market interest rates in line with Bank Rate.
The Bank monitors market interest rates to assess the effectiveness of monetary policy implementation. Market rates responded to decreases to Bank Rate in an orderly fashion, as shown by changes in Sterling Overnight Index Average (SONIA) and the Overnight General Collateral rate (Chart 2). There has been upward pressure in repo rates globally, as seen with the Sterling Overnight General Collateral rate, which has consistently traded above Bank Rate since mid-2024. This largely reflects the shift in the cash-collateral balance in the system, with declining (though still abundant) reserves and more plentiful collateral.footnote [5]
Footnotes
- Sources: Bank of England, Sterling Money Market data collection and Bank calculations.
- (a) Transactions included within the SONIA calculation are unsecured, of one-day maturity, settled same-day, and greater than or equal to £25 million in value.
- (b) The SMMD General Collateral rate is calculated as a volume-weighted average of all overnight cleared Delivery by Value (DBV) transactions in the secured Sterling Money Market data.
Reserves over the review period
Between March 2024 and end-February 2025, the total stock of UK central bank reserves decreased by £78.9 billion, from £785.6 billion to £706.7 billion (Chart 3). The majority of this reduction in reserves was driven by the sale and maturity of assets held through the APF. Maturities and repayments of Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) loans also contributed to the reduction in the level of reserves. Several other factors impact the level of reserves at any given time, including the amount drawn from SMF lending facilities, as well as other aspects of the Bank’s routine activities, including the value of sterling banknotes in circulation. Further information about the reduction in the stock of assets in the APF, and the unwind of TSFME, can be found in Section 3.4a and Section 4.1 respectively. Quarterly reserves data can be found in the annex.
Chart 3: Bank of England reserves supply and backing assets (a)
Footnotes
- Source: Bank of England.
- (a) Coloured areas summarise the Bank’s main on-balance sheet sterling facilities. The gap between the sum of those facilities and reserves primarily reflects sterling banknotes. ‘Term Funding’ includes the Term Funding Scheme and the Term Funding scheme with additional incentives for Small and Medium-sized Enterprises but excludes the Special Liquidity Scheme and the Funding for Lending Scheme (which were funded off balance sheet).
2.2: Operational Standing Facility (OSF) – deposits
The bilateral OSF deposit facility supports participating firms in managing liquidity demand shocks such as payment frictions by allowing reserves to be deposited overnight at a fixed spread to Bank Rate. The Bank generally pays a return of 0.25% below Bank Rate on deposits. As with all SMF facilities, the OSF is ‘open for business’ and should be used by SMF participants for the purposes of liquidity management.
There was limited usage of the OSF deposit facility over the review period. This usage was primarily driven by Central Counterparties and International Central Securities Depositories who are required to maintain a target average balance on their reserves accounts. These participants can use the OSF deposit facility as intended to manage their reserves holdings. Aggregate quarterly OSF usage data can be found in the annex.
2.3: Alternative Liquidity Facility
The Bank launched the Alternative Liquidity Facility (ALF) in December 2021. It is a weekly, fund-based deposit facility available to UK banks that face formal restrictions on engaging in interest-bearing activity, including – but not limited to – Islamic banks. The ALF provides its participants with flexibility in meeting regulatory requirements under Basel III prudential rules. Deposits in the ALF are backed by a portfolio of high-quality eligible assets, which include ‘sukuk’ bonds issued by the Islamic Development Bank. Returns generated from the backing fund may be passed back to depositors in lieu of interest, net of hedging and operational costs. The deposit capacity of the ALF is determined by the Bank, based on the high-quality liquid asset requirements of the participants, demand for the facility and the size of the backing fund. The Bank is actively considering increasing the size of the facility and backing fund to support its objectives. The Bank publishes monthly average aggregate data on ALF usage each quarter, with a one-quarter lag. There was a high level of usage throughout the review period, with average aggregate monthly usage of £198 million set against a deposit capacity of £200 million.
3: Lending facilities
3.1: Regular operations
3.1a: Short-Term Repo
The Short-Term Repo (STR) is our regular market-wide sterling operation aimed at maintaining control of short-term market interest rates. Its terms help to ensure market participants have little need to pay up in sterling money markets for reserves. In 2022, the PRA confirmed that it judges use of the STR to be routine participation in sterling money markets and intends that it should be seen as such by firm boards and overseas regulators.footnote [6]
STR usage increased over the review period, with the stock of outstanding drawings increasing from £1.1 billion to £50.3 billion. Weekly STR drawings averaged £30.4 billion over the review period. At the end of February 2025, 70 firms had participated in the STR, comprising both live and test drawings. This increase in usage and participation was intended as the Bank transitions towards a demand-driven, repo-led framework.footnote [7]
3.1b: Indexed Long-Term Repo
The Indexed Long-Term Repo (ILTR) is one of the Bank’s regular market-wide sterling operations. The ILTR allows market participants to borrow central bank reserves via weekly competitive auctions against the full range of eligible collateral for a term of six months.
ILTR usage increased throughout the review period, with the stock of outstanding drawings increasing from £1.8 billion to £9.5 billion, as illustrated in Chart 4. This increase in usage was intended as the Bank transitions towards a demand-driven, repo-led framework.footnote [8]
The ILTR, along with the STR, will continue to play an increasingly central role in meeting demand for reserves from participants. Reflecting this expanded role relative to the past, the PRA confirmed that it judges usage of the ILTR to be routine sterling liquidity management.footnote [9] The Bank recently announced important changes to the calibration of the ILTR, set out in this Market Notice.
Chart 4: Average amounts lent in SMF liquidity facilities in the review period (a)
3.1c: Non-sterling facilities
The Bank’s US dollar repo operation offers to lend dollars on a weekly basis. Participants can bid for unlimited funds for a seven-day term at fixed spread, secured against the full range of eligible collateral. The facility makes use of the international network of standing swap lines between participating central banks, which can be used to offer short-term repo transactions with participating firms in selected other currencies, to support our financial stability objective. In the case of the US dollar repo, the Bank makes use of the swap line with the US Federal Reserve.
Over the review period, there was limited facility usage, consistent with firms testing access to the facility. The Bank continues to stand ready with other central banks to readjust the provision of non-sterling liquidity as warranted by market conditions.
3.2: On-demand operations
3.2a: Operational Standing Facility – lending
The bilateral OSF lending facility supports participating firms to borrow reserves on an overnight basis throughout each business day. The OSF supports firms in managing liquidity demand shocks such as payment frictions by allowing firms to borrow reserves against level A collateral, at a fixed spread to Bank Rate, on demand. The Bank generally applies an interest rate of 0.25% above Bank Rate on lending. As with all SMF facilities, the OSFs are ‘open for business’ and should be used by SMF participants for the purposes of liquidity management. OSFs also limit volatility in market interest rates by providing an alternative source of borrowing to our weekly market-wide operations, thereby supporting short-term rate stability.
OSF lending remained low throughout the review period. Usage can be attributed to the periodic testing of firms’ ability to access the facility, as well as a limited number of technical issues encountered by SMF participants.
3.2b: Discount Window Facility
The Discount Window Facility (DWF) is a bilateral facility, allowing firms to borrow highly liquid assets (gilts and reserves) on demand, against the full range of SMF collateral. As with all SMF facilities, the DWF is ‘open for business’ and should be used by SMF participants for the purposes of liquidity management.
The Bank discloses DWF usage on an aggregated basis with a five-quarter lag. Since the 2023–24 report on the Bank’s market operations, the Bank disclosed that the average daily DWF drawing in 2023 Q4 was £1,125 million. Usage of the DWF remains in line with our ‘open for business’ approach to all SMF facilities.
3.3: Contingent operations
3.3a: Contingent Term Repo Facility
The Contingent Term Repo Facility (CTRF) allows the Bank to provide liquidity against the full range of eligible collateral at any time, term, and price. The Bank is able to activate the facility when market conditions or other factors mean a tool is needed in addition to our other facilities. We take prevailing market conditions into account when we calibrate its terms, enabling us to respond to any actual or prospective market-wide event in a flexible way. The CTRF was not activated by the Bank during the review period.
3.4: Term funding
3.4a: The Term Funding scheme with additional incentives for Small and Medium-sized Enterprises
The Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME) was launched in March 2020 as part of the Bank’s response to the Covid-19 pandemic. Its purpose was to support the pass-through of Bank Rate, and was designed to incentivise banks to provide credit to small and medium-sized enterprises (SMEs) in particular. The TFSME was open for new lending from 15 April 2020 to 31 October 2021 with drawings peaking at £193.4 billion in October 2021.
The TFMSE is continuing to wind down, with most drawings maturing in 2025. The unwind of TFSME represents a normalisation of funding conditions, and of the central bank’s balance sheet following crisis era intervention. Participants may choose to repay early any TFSME transaction, in part or in full, before its contractual maturity date and a significant number of TFMSE participants have already begun repaying their loans ahead of contractual maturity (Chart 5). Outstanding TFSME drawings fell from £151.3 billion to £98.2 billion during the review period from a combination of early repayments and contractual maturities.
Firms should continue to plan well in advance for repaying and refinancing their maturing TFSME drawings. Firms should smooth their exit from the scheme, prefunding where possible. In doing so, they should continue to take into account the impact of other firms’ actions on the cost of this refinancing. Some firms have also indicated plans to use the ILTR as they refinance TFSME, which is welcome. The Bank expects firms to have a refinancing and repayment plan, and will monitor their progress against it.
As TFSME maturities will result in a release of collateral previously encumbered, firms will need to balance any desire to use the collateral released to raise secured funding in private markets against their preparedness to access Bank facilities, including the ILTR. Either way, firms should continue maintaining and building an appropriate amount of pre-positioned collateral at the Bank to access all our liquidity facilities as needed in both typical market conditions and in stress.
Chart 5: TFSME unwind (a)
4: Asset purchases, maturities and sales
4.1: Asset Purchase Facility
The Bank holds a stock of government bonds purchased for monetary policy purposes through the APF.footnote [10]
Gilt maturities and sales
In September 2023, the MPC voted to reduce the stock of gilts held in the APF by £100 billion over the following 12 months, comprising both gilt maturities and a programme of sales. In September 2024, the MPC voted to reduce the stock of gilts held in the APF by £100 billion over the following 12 months, again comprising both gilt maturities and sales. The MPC’s stock reduction target is expressed in terms of the proceeds paid to purchase assets, so-called ‘initial proceeds’.
Over the review period, and in line with relevant MPC decisions, the Bank conducted regular multi-stock gilt auctions. Auctions were designed and operated to meet the stock reduction target, accounting for maturing APF gilt holdings over that period. During this time, the total stock of gilts held in the APF for monetary policy purposes decreased from £732.8 billion to £645.7billion. £52.7 billion of gilts matured from the APF without replacement, and £34.4 billion of gilts were sold via Bank auctions.
The APF is subject to comprehensive governance, reporting and transparency arrangements consistent with the indemnity provided by HM Treasury and the HM Treasury Accounting Officer’s requirement to protect the rights and assets of the taxpayer including value for money.footnote [11]
Box A: Supplying reserves via a demand-driven operating framework
The ‘supply-driven’ system
As part of successive policy interventions, the Bank significantly increased the total stock of central bank reserves via rounds of asset purchases (known as quantitative easing (QE)) and funding schemes, up to a peak of £978.8 billion in January 2022 (Chart 3).
Over this period, the aggregate level of reserves was largely determined by the quantity of asset purchases and lending schemes conducted by the Bank, rather than the amount eligible firms would otherwise choose to deposit with the Bank to manage their day-to-day liquidity needs.
This ‘supply-driven’ system has kept short-term interest rates very close to Bank Rate (as illustrated on the right-hand side of Figure A). The environment of abundant reserves supply meant that firms had little need to bid money market rates above Bank Rate to obtain reserves. At the same time, remuneration of reserves at Bank Rate means that firms have no incentive to lend excess reserves at rates below Bank Rate.
Figure A: Monetary control under an ample supply and demand-driven system
The ‘demand-driven’ system
In February 2022, the MPC voted to begin unwinding the stock of assets purchased during QE – a process known as quantitative tightening (QT). This process, along with the repayment of Covid-era loans made as part of the Term Funding Scheme with additional incentives for Small and Medium-sized Enterprises (TFSME), has meant that the total stock of reserves has been decreasing since 2022 (as illustrated in Figure B).
This reduction in the total stock of reserves has implications for our operating framework. While reserves remain abundant, the MPC’s policy goal of anchoring interest rates to Bank Rate continues to be met via the supply-driven system. However, eventually, the supply of reserves could approach the minimum range required by firms to meet their payment obligations and broader liquidity needs – the Preferred Minimum Range of Reserves (PMRR).
As reserves supplied by the crisis-era interventions of QE and TFSME continue to decline, we are transitioning to a demand driven repo-led framework, in which market participants determine the total stock of reserves via their aggregate transactional and precautionary demand. The Bank published a discussion paper in December 2024, which set out and sought feedback on the Bank’s transitional operating framework for supplying reserves.
In this ‘demand-driven’ system, market participants will be able to meet their demand for reserves through use of our repo lending facilities: the STR and the ILTR. Figure B illustrates this transition from asset purchases being the primary source of reserves, to our repo lending facilities playing an increasingly significant role in supplying reserves. The transition from where we are now – with surplus reserves – to a demand driven framework, is well under way. Market participants continue to increase their usage of our repo lending facilities. Outstanding aggregate lending via STR and ILTR increased from £2.9 billion to £59.9 billion between March 2024 and end-February 2025.
The Bank has recently announced changes to the calibration of the ILTR to ensure it is appropriate for the transition to a repo-led operating framework. These changes result in a significant increase in the total amount of reserves available in each ILTR auction, an increase in the quantity of reserves available at fixed minimum spreads, and a gentler upward sloping supply curve than previously to ensure clearing spreads only rise gradually.
These changes took effect from week commencing 16 June 2025. To support participating firms, the Bank also published an ILTR guide. This guide provides updated information on how the ILTR works, principles for effective participation, and illustrative examples of auction outcomes under varying demand conditions.
We intend that the STR and ILTR should be used freely to access reserves as part of firms’ routine sterling liquidity management. As with all SMF facilities, they are ‘open for business’. Reflective of these facilities’ expanded role relative to the past, the PRA have confirmed this via published statements on STR and ILTR.
Figure B: Stylised Bank of England balance sheet during the APF unwind
As part of the discussion paper, the Bank received feedback from a broad cross-section of UK and international banks, building societies, and other stakeholders on the transition to a repo-led operating framework. In response to this, the Bank also published a Feedback Statement in June 2025.This statement summarises key themes raised by respondents, and highlights the issues identified as key to ensuring the effective functioning of the new operating framework.
Box B: The Contingent Non-Bank Financial Institution Repo Facility
The Contingent Non-Bank Financial Institution Repo Facility (CNRF) is a new facility that opened for applications in January 2025. The purpose of the CNRF is to address future episodes of severe gilt market dysfunction that threaten UK financial stability arising from shocks that temporarily increase non-banks’ market-wide demand for liquidity. The CNRF will lend cash to participating insurance companies, pension funds and liability-driven investment funds against UK sovereign debt (gilts) for a short lending term.
As a contingent facility, the CNRF will be activated at the Bank’s discretion when episodes of severe gilt market dysfunction pose a threat to UK financial stability. It is likely to be used when lending would be effective in tackling gilt market dysfunction and the demand for liquidity is outside the reach of the Bank’s SMF lending facilities. It is deliberately designed with flexibility in mind, so as and when we judge it appropriate to activate the CNRF, we will calibrate its pricing and terms to suit the needs of the market at that time.
Eligible firms are encouraged to sign up to the CNRF to ensure that they will be operationally ready to use the facility should it be activated in a future market-wide stress. Broad participation in the CNRF will help to ensure that it is effective at tackling any future episodes of severe gilt market dysfunction which pose a threat to UK financial stability. We will publish the number of participants in the CNRF from next year’s report onwards.
5: Risk management
While the Bank’s market operations are designed to deliver monetary policy and to support financial stability, it is vital that facilities are designed and operated in a way that ensures risks to public funds are properly managed.
There is a presumption of access to the SMF for applicable firms that meet PRA supervisory threshold conditions and have the requisite collateral. A firm’s SMF eligibility is subject to a regular review of creditworthiness by the Bank’s financial risk management function, which enables the Bank to monitor its risk and exposures to counterparties across multiple operations. To produce credit assessments, data and information are sourced from PRA supervisors, publicly available information such as annual reports, and the member firms themselves, including through onsite interviews with executive management where appropriate.
Lending under the SMF is secured against collateral. The Bank’s eligible collateral listfootnote [12] is broad, including a wide range of securities and portfolios of residential mortgage loans, asset finance, consumer (excluding credit cards), auto, corporate, SME, commercial real estate, private finance initiative, social housing loans, and loans and asset finance under the various coronavirus lending schemes.footnote [13] This enables a broad range of counterparties to have access to SMF facilities. The Bank strongly encourages SMF participants to deliver unencumbered eligible collateral to the Bank sufficient to meet their possible liquidity needs in times of stress. This is generally known as the ‘pre-positioning’ of collateral.
In principle, the Bank accepts collateral it judges it can effectively and efficiently risk manage. For certain types of collateral, the Bank requires SMF participants to complete due diligence ahead of pre-positioning, to ensure the collateral is within the Bank’s risk tolerance. This may include a data audit, legal review and risk assessment of the loan portfolio.
Collateral haircuts are set to protect the Bank’s balance sheet in a severe stress. As at end-February 2025, base haircuts for SMF collateral range from:footnote [14]
- 0.5%–16.5% for sovereign securities;
- 12%–24% for residential mortgage-backed securities or covered bonds;
- 15%–37% for other asset-backed securities;
- 30%–42% for portfolios of senior corporate bonds; and
- 10%–57% for loan pool haircuts across all collateral types.
The aggregate value of collateral held at the Bank by SMF participants stood at £557 billion on 28 February 2025. The total amount of exposures across the Banks’ market operations was £167 billion, leaving unencumbered pre-positioned collateral of £390 billion. This is £43 billion more than on 28 February 2024. Total collateral holdings rose by £52 billion over the same period.
Residential mortgage collateral makes up over three quarters of collateral delivered to the Bank (full breakdown of collateral composition is shown in Chart 6). High-quality liquid assets, such as gilts, are typically not pre-positioned since they are used by firms in their trading in private markets and can be delivered to the Bank at very short notice if needed.
Chart 6: Collateral holdings broken down by collateral type (average market value)
Footnotes
- Source: Bank of England.
Annex
Table A.1: Balances held in reserves accounts (£ millions)
Total as at end-February 2024 | 2024 Q1 | 2024 Q2 | 2024 Q3 | 2024 Q4 | Total as at end-February 2025 | |
|---|---|---|---|---|---|---|
Reserves balances(a) | 785,589 | 790,948 | 773,122 | 753,959 | 725,107 | 706,745 |
Table A.2: Results of operations and funding scheme drawings (£ millions) (a)
Total stock outstanding February 2024 | 2024 Q1 | 2024 Q2 | 2024 Q3 | 2024 Q4 | Total stock outstanding as at end-February 2025 | |
|---|---|---|---|---|---|---|
OSF(b) Loans | 0 | 0 | 0 | 0 | 0 | 0 |
OSF(b) Deposits | 0 | 0 | 0 | 0 | 0 | 0 |
ILTR(c) Total | 1,839 | 400 | -170 | 2,031 | 3,291 | 9,536 |
Level A | 620 | 500 | 510 | 500 | 1,628 | 5,058 |
Level B | 65 | -25 | 150 | 460 | -95 | 500 |
Level C | 1,154 | -75 | -830 | 1,071 | 1,758 | 3,978 |
STR(d) | 1,105 | 2,118 | 12,272 | 32,780 | 42,053 | 50,340 |
TFSME(c) | 151,339 | -7,086 | -6,130 | -14,614 | -20,837 | 98,243 |
Footnotes
- (a) Figures are taken from published data in the Bank’s weekly report.
- (b) Quarterly OSF figures reflect average daily drawings during the quarter.
- (c) Quarterly ILTR and TFSME figures reflect changes in outstanding (net drawdowns) for each period.
- (d) Quarterly STR figures reflect average weekly drawings per quarter.
Chart 1.A: Outstanding amounts lent in SMF liquidity facilities and funding schemes 2015–25 (a)
The governance of the Bank’s balance sheet is set out in: Governance of the Bank of England’s balance sheet: principles of engagement.
The Bank of England Asset Purchase Facility Fund Limited (BEAPFF) and the Bank of England Alternative Liquidity Facility Limited (BEALF).
Access to SMF facilities involves obtaining a reserves account in the Real-time Gross Settlement (RTGS) service. The renewed RTGS service went live in April 2025. One of the important benefits of this renewed service is improving access to RTGS. As part of the programme to renew RTGS over recent years, it has been necessary to impose temporary change freezes that have impacted the Bank’s ability to onboard new reserves account participants to the SMF.
Following the conclusion of the corporate bond sales programme, the APF also held a small number of very short maturity bonds that matured by April 2024, in line with a June 2023 Market Notice.
Specifically, the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, and loans under the Bounce Back Loan Scheme.
Haircut add-ons are kept under review by the Bank.