Greening the Bank of England’s Collateral Framework - Ending the Bank of England’s support for harmful assets

Greening the Bank of England’s Collateral Framework Ending the Bank of England’s support for harmful assets Contents Summary 4 Introduction 5 Section 1: The Bank of England’s collateral framework 9 1.1 The increasing importance of collateral 11 Section 2: The collateral framework’s carbon bias 14 Section 3: Approaches and examples of greening collateral frameworks 17 3.1 Approaches to greening col. [...] Increase transparency over the Bank of England’s current collateral operations, including disclosing the environmental footprint of holdings 4 Greening the Bank of England’s Collateral Framework February 2024 Introduction Why the collateral framework matters The Bank of England’s (‘the Bank’s’) collateral framework is a powerful tool that shapes the UK and international financial system. [...] 8 Greening the Bank of England’s Collateral Framework February 2024 Section 1: The Bank of England’s collateral framework The collateral framework is the set of rules set by the central bank for the lending of central bank reserves to financial firms. [...] Since the global financial crisis, the Bank has expanded the range of assets accepted, and the range of institutions that can access liquidity facilities in order to ensure monetary and financial stability in the wake of the financial crisis. [...] For example, both the Bank’s Funding For Lending and Term Funding Scheme have been tailored to incentivise bank lending to small and medium-sized enterprises (SMEs).28 Monetary tightening and collateral The overall stock of central bank reserves in the UK financial system rose substantially in the years following the 2008 Global Financial Crisis as central banks including the Bank of England turne.