Learning by doing − speech by Victoria Saporta
Given at Bank of Finland & SUERF Conference, Helsinki, 11 June 2025
The transition to a repo-led, demand-driven framework is a major change in operating practice, both for us and firms. This is why we felt it was important to set out our thinking at greater length in a DP last December and invited formal feedback. We have today put out a feedback statement to that DP – and here I will talk through a few key points.
A key purpose of the DP was to outline our proposals to recalibrate the ILTR, to make it fit for purpose to supply the stock of reserves, alongside the STR.
We received 61 responses, primarily from SMF participants and a variety of trade associations. Respondents generally supported our approach to the recalibration of ILTR which involves supplying a larger total amount available per weekly auction, an increase in the quantity of reserves available at fixed minimum spreads, and a gentler upward sloping supply curve than before to ensure that clearing spreads only rise gradually.
The Bank will continue to review the ILTR to ensure it remains effective and aligned with market conditions. From November 2025, the minimum spread on bids against Level A collateral in the ILTR will rise from 0 to 3 basis points above Bank Rate. By introducing a modest spread above Bank Rate, this change is intended to balance incentives for participants between the STR and ILTR facilities against Level A collateral by more closely aligning the effective costs of the facilities given the longer tenor of the ILTR. This change will be confirmed in advance, with no changes planned for Level B or C collateral.
Some respondents asked for further clarity about how the ILTR pricing and allocation work, especially as and when demand increases. We’ve published a new ILTR guide for participants to address this. The guide provides practical guidance for firms and example auction outcomes which demonstrate principles for how to bid effectively in the ILTR.
Many respondents welcomed the increase in transparency around the facility’s pricing and design. However, a number of respondents also asked for greater flexibility around the tenor of loan – either in the form of shorter maturity options or the option to repay ILTR drawings early. While we are making no changes now, as we transition to the steady state framework we will review whether increasing the flexibility offered by the ILTR could improve its usability without undermining the facility’s integrity as a competitive auction.
Some respondents requested greater clarity on the role of the Operational Standing Facilities (OSFs) and the Discount Window Facility (DWF) in a repo-led framework. We expect the OSFs and DWF to both play an important role in our framework, alongside our regular market-wide operations. As with all SMF facilities, the OSFs and DWF are ‘open for business’ and should be used by SMF participants for the purposes of liquidity management.
Firms recognised that OSFs could play a role in responding to shocks in demand for reserves which occur outside of the ILTR or STR auction window. However, given some comments from firms that they would use OSFs only as a last resort, we intend to review the current design and effectiveness of OSFs and we will engage with the market as part of this piece of work.
In addition, several respondents set out changes to the Bank’s current collateral eligibility and settlement processes that in their view would enhance the overall usability of the Bank’s facilities to SMF firms. We’ve engaged with that thoroughly in the feedback statement, and welcome further engagement on these topics – it’s vital that operational robustness and effective risk management processes enable effective usage of our facilities.
The full speech is available here.