UK Banks Flood Bank of England with High-Risk Assets

UK commercial banks are increasingly pledging high-risk assets as collateral to the Bank of England. According to filings, during the six-month funding weekly auction on August 18, banks pledged £1.9 billion worth of the highest-risk category collateral, marking a threefold surge from the previous week.

This represents the highest single-week level since March 2020 and brings the total amount of so-called 'Category C' collateral currently held by the Bank of England through its Indexed Long-Term Repo (ILTR) facility to approximately £17.8 billion, significantly higher than the £8.7 billion recorded a year ago.

The transactions highlight the extent of the Bank of England's exposure to high-risk and potentially illiquid assets. The central bank protects itself through what it terms 'robust risk management,' allowing institutions to use a broad range of assets as collateral.