Bank of England lowers cost of on-demand liquidity facility

Friday 27 March 2026 - 09:30

Bank of England announced a reduction in the cost for banks to access its on-demand liquidity support, aiming to simplify its reserve management and improve financial stability.

The move is part of a broader shift to a demand-driven reserve system, under which commercial banks borrow cash from the central bank using government bonds and other approved collateral. The central bank now holds less government debt compared to previous policies.

The change specifically affects the Discount Window Facility, which provides liquidity for up to 30 days on an as-needed basis. This facility is designed for institutions facing unexpected liquidity requirements, complementing standard market operations such as weekly repo transactions.

Under the new structure, the Bank of England will charge 15 basis points over Bank Rate for the highest-quality collateral, 25 basis points for medium-grade assets, and 50 basis points for lower-quality collateral. This replaces the previous, more complex fee structure and provides clearer terms for participants.

Analysts note that the adjustment is intended to support liquidity management in the banking sector while maintaining flexibility in monetary policy implementation. The simplification is also expected to enhance transparency and reduce operational complexity for financial institutions.