The Bank of England received the largest amount of highest-risk assets since March 2020 as collateral from UK banks seeking cash liquidity through its Indexed Long-Term Repo facility in the week to 18 August 2026. UK banks pledged £1.9 billion in Level C assets, triple the previous week’s amount. Total Level C assets in the facility reached £17.8 billion, more than double the £8.7 billion held a year earlier.
Rising reliance on central bank
Level C assets represent the riskiest collateral the Bank of England accepts. They include mortgage-backed securities, auto loans, and credit card receivables packaged as securities. The European Central Bank enforces stricter rules and no longer accepts some of these products as collateral. In mid-2024, Level C assets held through the ILTR facility stood below £1 billion.
Moyeen Islam of Barclays noted that reduced investor interest in private credit markets may explain why banks increasingly turn to the Bank of England for liquidity. The global private credit industry has grown to $3.5 trillion, driven by attractive returns for investors. A Bank of England spokesperson said: “Our facility is open to be used and we welcome increased usage.”
Risks of expanded acceptance
William Allen, former head of the Bank of England’s money markets division, cautioned that the central bank has reasons to accept Level C assets, but if usage grows too large it can encourage riskier lending. Securitisation of credit was identified as a contributing factor to the 2008 global financial crisis. Current conditions do not amount to a crisis on that scale; the concern is the longer-term risk if banks find it too easy to raise central bank funding against riskier assets. The rapid expansion in collateral use signals mounting pressure on bank liquidity.
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Source: Bank of England
