The Bank of England published a discussion paper on its transition to a repo-led, demand-driven operating framework, including proposals to recalibrate the (Indexed Long-Term Repo) ILTR in line with its expanded role.
The process of transition has now begun. The quantity of reserves has been steadily falling due to the unwind of QE purchases and TFSME repayments, with a small component being offset by increased use of both our Short-Term Repo (STR) and the ILTR operations. This is consistent with a gradual move from a supply-led framework to a demand-led one.
The ILTR and STR are not the only pieces of the puzzle. These facilities are part of a wider suite of Sterling Monetary Framework (SMF) facilities, both bilateral and market-wide and firms should consider use of our facilities holistically.
As part of the suite of facilities, the ILTR will play a greater role than it has in the past. The ILTR will, alongside the STR, supply the majority of the stock of reserves to meet the system’s liquidity needs. The ILTR’s parameters need to adapt to this evolving role.
Central to a successful transition is operational readiness. In addition to views on the framework itself, we are setting out good practice that firms should follow to ensure they are ready for greater use of our facilities, including by considering their approach to pre-positioned collateral and ensuring familiarity with collateral and settlement processes and systems.