Finance
Bank of England Lowers Cost of On-Demand Liquidity Facility
Published by Global Banking & Finance Review®
Posted on March 27, 2026
2 min readLast updated: March 27, 2026
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The Bank of England has simplified its Discount Window Facility (DWF) pricing, setting fixed spreads over Bank Rate—15 bps for high-quality collateral, 25 bps for mid-grade, and 50 bps for lower-grade—as part of its shift toward a repo‑led, demand‑driven reserves framework.
Bank of England Lowers Costs for On-Demand Liquidity to Financial Institutions
Bank of England Adjusts Liquidity Support Framework
LONDON, March 27 (Reuters) - The Bank of England said on Friday it was lowering the cost for financial institutions to access its on-demand liquidity support as it shifts away from lenders holding large interest-bearing reserves at the central bank.
Transition to Demand-Driven System of Reserves
The BoE is moving to what it calls a demand-driven system of reserves under which commercial banks use collateral such as government bonds to borrow cash from the BoE and the central bank holds much less government debt than before.
Weekly Repo Operations
Banks typically obtain sterling liquidity at weekly BoE repo operations for one-week and six-month funds.
Changes to the Discount Window Facility
Friday's change affects the Discount Window Facility, which offers funds for up to 30 days on an on-demand basis against similar collateral to the main repo facilities.
Purpose of the Discount Window Facility
"It is intended for Sterling Monetary Framework participants who anticipate or experience a previously unexpected liquidity need, complementing our regular market‑wide operations," the BoE said in a statement.
Revised Pricing Structure
The BoE said the Discount Window Facility would charge a spread of 15 basis points over Bank Rate for the highest-quality collateral, 25 bps for the middle grade and 50 bps for the lowest-quality assets, replacing a more complex charging system.
Collateral Options
Unlike most other BoE facilities, the Discount Window Facility also allows financial institutions to borrow British government bonds as well as BoE reserves.
Other Bank of England Liquidity Facilities
The BoE operates separate facilities that only come into effect during periods of market stress, or are designed for more urgent overnight borrowing needs.
(Reporting by Sarah Young and David MillikenEditing by William Schomberg)
Key Takeaways
- •The new DWF pricing replaces a more complex system, making on‑demand liquidity more transparent and predictable.
- •This move supports the BoE’s transition away from holding large government bond reserves to a model where banks borrow collateralised liquidity as needed.
- •It complements the Short‑Term and Indexed Long‑Term Repo operations, reinforcing the repo‑led, demand‑driven approach to reserve management.
Frequently Asked Questions about Bank of England lowers cost of on-demand liquidity facility
1What change has the Bank of England made to its on-demand liquidity facility?
The Bank of England has lowered the cost for financial institutions to access its Discount Window Facility.
2What collateral can banks use to borrow from the Bank of England?
Banks can use collateral such as government bonds and, in the Discount Window Facility, borrow British government bonds and BoE reserves.
3How has the charging system for the Discount Window Facility changed?
The facility will now charge a spread of 15-50 basis points over Bank Rate, replacing a more complex system.
4Who is the Discount Window Facility intended for?
It is intended for Sterling Monetary Framework participants anticipating or experiencing unexpected liquidity needs.
5How does the new system affect the Bank of England's reserves?
The BoE will hold much less government debt as banks borrow based on their demand using collateral.