Bank of England: PRA statement on Indexed Long-Term Repo (ILTR) facility

The Bank of England has published a Discussion Paper setting out its intention to recalibrate the Indexed Long-Term Repo Facility (ILTR). This is part of the Bank’s preparation for the transition to the demand-driven repo-led framework and complements the Bank’s existing tools, notably including the Short-Term Repo facility (STR) launched in August 2022.

In the transition to a demand-driven, repo-led framework for supplying reserves, the ILTR will play a key role in supplying the stock of reserves needed for both financial stability and monetary control purposes.

The Bank intends that the ILTR should be used freely as a way for counterparties to access reserves. The PRA would judge usage of the ILTR to be routine sterling liquidity management and intends that it is also seen as such by firms’ boards, credit rating agencies and overseas regulators.

The Bank has recently published a Market Notice that confirmed the ILTR as a weekly operation and updated its positioning in the Bank of England Market Operations Guide.

Further changes to the ILTR to ensure it is appropriately calibrated to supply a larger stock of reserves for the transition to a repo-led framework will take effect in 2025. Further details on these changes will be announced by the Bank in due course once responses to the Discussion Paper have been taken into consideration. The PRA encourages firms to engage with the Bank and PRA supervision on the Discussion Paper and recalibration proposals.

As the Bank expects usage of the ILTR to rise in the course of the transition to the repo-led framework, the PRA encourages firms to test their operational readiness for accessing the ILTR regularly to ensure familiarity with the process and a smooth transition. The ILTR will still be available to provide liquidity insurance as it provides a ‘liquidity upgrade’, allowing firms to swap less liquid collateral for reserves.

More generally, the PRA intends to review in due course the PRA’s liquidity and funding policy framework, including relevant regulatory reporting, to ensure alignment with the Bank’s transition to a repo-led framework.

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