Report on the Bank’s official market operations March 2025–February 2026

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 by 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.

The Bank is ‘open for business’. Our SMF facilities are there to be used by firms as part of their routine sterling liquidity management. Participants that meet regulatory threshold conditions for authorisation and have the appropriate collateral, have the flexibility to use SMF facilities as and when they deem appropriate.^{footnote [3]} Further information for firms seeking to apply for access to our facilities is available at Information for applicants.

Over the review period, the Bank has continued the transition towards a demand-driven, repo-led framework for supplying central bank reserves. The transition is advancing in line with expectations, with many participants routinely using market‑wide repo operations. Reserves continued to be drained via the sale and maturity of gilts held in the APF, alongside repayments of TFSME drawings. Regular use of market‑wide facilities has helped to ensure short‑term money market rate stability as reserves become less abundant. There were significant increases in drawings from both the STR and ILTR over the review period, marking important steps in the Bank’s balance sheet transition.

Complementing these weekly operations, the Bank has strengthened its bilateral facilities by reducing the pricing for both the OSF and DWF. Additionally, participants’ interactions with the Bank are being further enhanced by initiatives to modernise infrastructure and processes, including improved collateral processes and the introduction of a new Sterling Markets Auction and Repo Trading System (SMARTS) to run market operations.^{footnote [4]}

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 sets out APF activities over the period.
• Section 5 summarises the Bank’s risk management framework.

1: SMF membership

Access to the Bank’s sterling market operations is open to a wide range of eligible financial firms. Firms that wish to use the Bank’s reserves accounts or lending 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 extend their access to additional facilities. At end-February 2026, 221 participants had access to SMF facilities.^{footnote [5]} During the review period, 14 existing participants signed up for access to additional facilities, broadening the range of facilities available to them. In line with published SMF eligibility criteria, participation is entity-specific and may be surrendered or terminated following changes to a firm's legal status, including mergers or acquisitions. Three participants surrendered access to one or more SMF facilities. The Bank continues to keep its SMF access policy under review. To find out more, refer to information for applicants.

In March 2026, the Bank updated its SMF disclosure policy to allow firms the option of publicly disclosing SMF access, aligning with its open for business approach. SMF participants remain prohibited from disclosing access to specific facilities (beyond a reserves account) and from disclosing information on facility usage.

2: Deposit-taking activities

2.1: Reserves accounts

Reserves accounts are sterling-denominated 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 Bank Rate reductions over the review period in an orderly fashion, as shown by changes in Sterling Overnight Index Average (SONIA) and the Overnight General Collateral rate (Chart 2). In line with expectations, the SONIA to Bank Rate spread decreased over the reporting period. Sterling short-term repo rates remained closely anchored to Bank Rate, albeit with temporary upward spikes around month-end reporting dates as dealer balance sheet capacity is pulled back as expected. Over the last year, the overnight general collateral repo rate has consistently traded within the 0–10 basis point range above Bank Rate on average. The stability of these rates indicates that the Bank's operational framework is working as intended, as market participants navigate the Bank's transition to a repo-led, demand-driven framework.

Reserves over the review period

Between March 2025 and end-February 2026, the total stock of UK central bank reserves decreased by £63.2 billion, from £706.7 billion to £643.5 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 TFSME drawings 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, such as the value of sterling banknotes in circulation.

Further information about the reduction in the stock of assets in the APF, and the unwind of TFSME, can be found in Section 3.4a and Section 4.1 respectively. Quarterly reserves data can be found in the Annex.

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. In December 2025, the Bank recalibrated the remuneration of OSF deposits to 0.15% below Bank Rate. 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 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 enables greater 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 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 facility size 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. In July 2025, the Bank expanded the facility, increasing the ALF facility size from £200 million to £550 million, to support its objectives. ALF usage increased significantly over the review period, in line with the facility expansion, reaching average aggregate deposits of £531 million during February 2026. The Bank publishes monthly average aggregate data on ALF usage, with a one-quarter lag.

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 above Bank Rate for reserves in sterling money markets.

STR usage increased over the review period, with the stock of outstanding drawings increasing from £50.3 billion to £97.0 billion (Chart 4). At the end of February 2026, 70 firms had participated in the STR. This increase in usage was as intended, as the Bank continues to transition towards a demand-driven, repo-led framework.^{footnote [6]}

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.

Participation in the ILTR increased throughout the review period, both in volume and breadth. The stock of outstanding drawings increased from £9.5 billion to £69.9 billion, as illustrated in Chart 4. This significant increase in usage was intended, as the Bank transitions towards a demand-driven, repo-led framework. At the end of February 2026, 79 firms had outstanding drawings in the ILTR, compared to 43 firms at the end of February 2025. Of the £69.9 billion of stock outstanding at the end of the review period, £50.6 billion was allocated against Level A collateral, £5.3 billion against Level B collateral and £14.1 billion against Level C collateral.

The ILTR, along with the STR, will continue to play an increasingly central role in meeting demand for reserves from participants. The Bank announced important changes to the calibration of the ILTR in June 2025. These changes included an increase in the total quantity of reserves available in each ILTR auction, an increase in the quantity of reserves available at fixed minimum spreads, and a gentler upwards sloping supply curve than previously to ensure that clearing spreads only rise gradually. The Bank also announced an increase in the minimum spread over Bank Rate on bids against Level A collateral in November 2025.

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 a 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. 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.

In December 2025, the Bank recalibrated the pricing of OSF lending to 0.15% above Bank Rate. This allows counterparties to respond better to liquidity needs that arise between the Bank’s regular market-wide operations, ensuring short-term market interest rates remain anchored to Bank Rate while still limiting the risk of private market disintermediation.^{footnote [7]}

As expected, OSF lending remained low throughout the review period. As with all SMF facilities, the OSFs are ‘open for business’.

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’. The DWF should be used for the purposes of liquidity management. It is intended for SMF participants who anticipate or experience a previously unexpected liquidity need, complementing our regular, market-wide facilities.

In March 2026, the Bank announced a simplification and reduction in the pricing of the DWF. This improves the usability of the DWF, whilst maintaining incentives for prudent day-to-day liquidity management and avoiding private market disintermediation.^{footnote [8]}

The Bank discloses aggregate data on DWF usage with a five-quarter lag. During the review period, the Bank disclosed that the average daily DWF drawing in 2023 Q4 was £1,125 million. Each other quarterly disclosure in the review period reported no aggregate usage.

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.

3.3b: The Contingent Non-Bank Financial Institution Repo Facility

The Contingent Non-Bank Financial Institution Repo Facility (CNRF), which opened for applications in January 2025, is designed 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 can lend cash to participating insurance companies, pension funds and liability-driven investment funds against UK sovereign debt (gilts) for a short lending term.

The CNRF was not activated by the Bank during the review period. During the review period, we onboarded two participants to the CNRF and are processing a further six applications. This has been complemented by expressions of interest from a substantial number of firms. 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 future. 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. To find out how to apply, please see the Bank’s CNRF page.

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 TFSME is continuing to wind down, and a significant amount was repaid in 2025. Outstanding TFSME drawings fell from £98.2 billion to £41.9 billion during the review period. Of the outstanding drawings at the end of the review period, £18.4 billion is due to mature on 31 March 2027 and £11.4 billion is due to mature on 31 March 2031. Participants may choose to repay early any TFSME transaction, in part or in full, before its contractual maturity date.

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.

Gilt maturities and 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, comprising both gilt maturities and a programme of sales. In September 2025, the MPC voted to reduce the stock of gilts held in the APF by £70 billion over the following 12 months, again comprising both gilt maturities and sales.

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 £645.7 billion to £529.1 billion.

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.

APF operations, as carried out by the Bank executive, aim to maximise value for money by minimising cost and risk over the lifetime of the APF, subject to achieving the MPC’s chosen unwind target and in line with the MPC’s key principles.^{footnote [9]}

More information on APF operations can be found in the APF’s series of Quarterly Reports.

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. Regular reviews of creditworthiness enable the Bank to effectively risk manage its 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, including through onsite interviews with executive management where appropriate.

Lending under the SMF is secured against collateral. In principle, the Bank accepts collateral it judges it can effectively and efficiently risk manage. The Bank’s eligible collateral list^{footnote [10]} is broad, including a wide range of securities and portfolios of loans, including residential mortgages, 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 [11]} This enables a broad range of counterparties to have access to SMF facilities.

For certain types of collateral, such as loan portfolios, the Bank requires SMF participants to complete due diligence 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. Those portfolios can then be pre-positioned, making them ready to be delivered to the Bank as needed. For securities collateral, eligibility may need to be requested, then once eligible can be delivered to the Bank as needed.

The Bank strongly encourages SMF participants to preposition and maintain sufficient eligible collateral (ie ready to deliver to, or held at, the Bank).

Collateral haircuts are set to protect the Bank’s balance sheet in a severe stress. As at end-February 2026, base haircuts for SMF collateral range from:^{footnote [12]}

• 0.5%–16.5% for sovereign securities;
• 12%–24% for residential mortgage-backed securities or covered bonds;
• 3%–37% for other asset-backed securities and non-residential mortgage-backed covered bonds;
• 30%–42% for portfolios of senior corporate bonds; and
• 15%–57% for loan pool haircuts across all collateral types.

The aggregate value of collateral either pre-positioned or delivered to the Bank by SMF participants stood at £677 billion on 27 February 2026; £120 billion higher than the previous year. The total value of exposures across the Bank’s market operations was £213 billion, leaving collateral available to be drawn against of £464 billion. This is £74 billion more than on 28 February 2025.

Residential mortgage collateral makes up over three-fifths of collateral either pre-positioned or delivered to the Bank (full breakdown of collateral composition is shown in Chart 6). High-quality liquid assets, such as gilts, are typically not delivered unless they are drawn against, since they may be used by firms in their trading in private markets and can be delivered to the Bank at very short notice if needed.

Annex