On 27 June 2019, the Bank of England (BoE) published a Discussion Paper on its proposed approach to the risk management of collateral referencing London Interbank Offered Rate (LIBOR) for use in the Sterling Monetary Framework (SMF).

The Discussion Paper:

  • provides a brief background to both the LIBOR transition process and the BoE’s collateral framework;
  • describes some of the potential implications for the BoE’s balance sheet from LIBOR transition; and
  • outlines a number of possible risk management approaches currently under consideration by the BoE to ensure that it remains well placed to provide liquidity insurance in support of financial stability.The BoE adds that its assessment of collateral eligibility criteria and haircuts needed to protect public money are not normally informed by input from market participants. However, in this case, the unusually wide ramifications of LIBOR transition and the need to plan well ahead means that the BoE sees merit in seeking views at a relatively early stage in the process.
  • The deadline for comments on the Discussion Paper is 27 September 2019. Responses will be used to help frame the BoE’s future risk management approach with regards to collateral referencing LIBOR, which it will publish in due course after careful consideration.