PRA Consultation Paper on Modernising the Liquidity Policy Framework

CP5/26 – Modernising the liquidity policy framework Consultation paper 5/26 Opens

Published on 17 March 2026
This consultation paper was updated on 14 May 2026 to remove a sentence from paragraph
1.4 to correct the scope of applications of the proposals. The erroneous sentence removed
referred to counterparties of the entities listed in this paragraph.
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Contents
Privacy statement
1: Overview
Background
Structure of the CP
Changes to PRA rules and policy materials
Implementation
Responses and next steps
2: The PRA’s liquidity framework proposals
Proposal 1: Assess composition of liquidity resources and monetisation risk Proposal 2: Remove exemption for Level 1 Assets (including sovereign bonds) from the LCR Operational Requirement for monetisation testing Proposal 3: Clarify the role of central bank facilities within the prudential liquidity framework Proposal 4: Managing collateral Proposal 5: Other changes 3: PRA objective analysis 4: Cost benefit analysis (CBA) 5: Other legal requirements Appendices

Privacy statement
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When you respond to this consultation paper, please tell us in your response if you agree to the publication of your name, or the name of the organisation you are responding on behalf of, in the PRA’s feedback response to this consultation. Please make it clear if you are responding as an individual or on behalf of an organisation. Where your name comprises ‘personal data’ within the meaning of data protection law, please see the Bank’s Privacy Notice above, about how your personal data will be processed. Please note that you do not have to give your consent to the publication of your name. If you do not give consent to your name being published in the PRA’s feedback response to this consultation, please make this clear with your response. If you do not give consent, the PRA may still collect, record, and store it in accordance with the information provided above. You have the right to withdraw, amend, or revoke your consent at any time. If you would like to do this, please contact the PRA using the contact details set out below. Responses can be sent by email to: CP5_26@bankofengland.co.uk. Alternatively, please address any comments or enquiries to:
Liquidity Policy Team
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA
1: Overview
1.1 An effective prudential liquidity framework must underpin confidence and maintain trust by
evolving in line with developments in the financial system. Recent advances in digital banking, payments and digital technology can amplify and accelerate liquidity problems for firms in ways that were not fully anticipated when the current prudential liquidity framework was designed. Their potential effects were illustrated in March 2023 when Silicon Valley Bank experienced significant liquidity outflows within just a few days. Structural developments in the supply of central bank reserves, including, through repo operations, will also impact firms’ management of liquid resources. In response to these changes, the Prudential Regulation Authority (PRA) has identified targeted and proportionate adjustments to Opens

modernise the existing liquidity framework, strengthen firms’ resilience to potential future liquidity shocks and enhance their operational readiness for a wider range of scenarios. Together, this package is intended to underpin confidence and trust in the system.
1.2 This consultation paper (CP) sets out the PRA’s proposals to modernise the prudential
liquidity framework—with the focus on targeted changes to Pillar 2 through the Internal Liquidity Adequacy Assessment (ILAA) rules and supervisory expectations. The proposals seek to strengthen firms’ internal stress testing approaches and controls. They also aim to enhance firms’ operational readiness to deal with future liquidity shocks, and support firms’ resilience as the Bank of England’s (the Bank’s) monetary operating framework transitions to a demand driven and repo-led supply of reserves.
1.3 A key feature of the proposals discussed in this CP, is their proportionate nature. The
proposals would advance the PRA’s objective for safety and soundness by enhancing liquidity resilience to future potential liquidity shocks across firms without significant adverse effects on competition or competitiveness and growth. The proposals would avoid a one-size￾fits-all approach by appropriately applying to the nature and scale of firm’s business models, the structure of their liquidity resources and the liquidity risks that firms manage. This would help to ensure the proportionate application to smaller firms, including Small Domestic Deposit Takers (SDDTs). They would also help to underpin confidence across the banking system in a stress; reducing risks to financial stability and supporting sustainable financial intermediation.
1.4 This CP is relevant to PRA-authorised UK banks, building societies, PRA-designated UK
investment firms, and their qualifying parent undertakings, which for this purpose, comprise financial holding companies and mixed financial holding companies, as well as credit institutions, investment firms, and financial institutions that are subsidiaries of these firms, regardless of their location. It is not relevant to credit unions. Background
1.5 The existing liquidity standards were established in response to the global financial crisis
(GFC) of 2007/08. The Liquidity Coverage Ratio (LCR) was designed to promote the short￾term resilience of the liquidity risk profile of banks, by requiring them to hold a large enough stock of high-quality liquid assets (HQLA) to meet payment obligations during a 30-calendar day stress. The stress scenario specified in the LCR was informed by the liquidity shocks experienced in 2007/08 and was calibrated to provide a buffer for the types of stress observed. The net stable funding ratio (NSFR) was designed to ensure that banks maintain a stable funding profile over a longer horizon in relation to the composition of their assets and off-balance sheet activities. Opens

1.6 These standards are supplemented by the PRA’s Pillar 2 liquidity framework for
supervisors to assess broader and firm-specific risks. Statement of policy (SoP) 1/18 – Pillar 2 Liquidity, sets out the PRA’s approach for assessing liquidity risks not fully captured in the Pillar 1 LCR standard, including cashflow mismatch risk, franchise risk, and intraday liquidity risk. To monitor cashflow mismatch risk, the PRA monitors the combined benchmark stress, which extends the LCR scenario to 90 days with daily granularity. Firms must also undertake their own assessment of liquidity risks, including under the Overall Liquidity Adequacy Rule (OLAR), in the Internal Liquidity Adequacy (ILAA) Part of the PRA Rulebook.
1.7 Since the existing liquidity framework was developed, advancements in the use and scale
of digital banking, payments and communications have changed the nature of liquidity risks faced by firms. Technological developments in banking, payments and communication have been significant factors in confidence being lost more rapidly and runs occurring and spreading at a speed that was not fully foreseen when the regulation was designed.
1.8 The events of March 2023 showed how these factors can affect individual firms; how
advancements in digital banking can expedite deposit outflows and crystalise liquidity risk when confidence is lost. Three small and mid-sized US banks and Credit Suisse Group (CS), experienced significant liquidity outflows within a few days. Each bank was affected by a distinct combination of significant, idiosyncratic factors, that were drivers of the loss of confidence that led to their failure. To protect financial stability, US and Swiss authorities provided exceptional support to the relevant banks in their jurisdictions. Central banks intervened to provide emergency liquidity assistance.
1.9 Two key lessons from the Basel Committee’s report to G20 Finance Ministers and
Central Bank Governors in October 2024 on the 2023 banking turmoil were that: (i) the scale and speed of the outflows far exceeded the levels assumed in the LCR; and (ii) there was a lack of preparedness and operational capacity at some banks to monetise their securities in private markets or with central banks. This potentially impacted the failed firms’ ability to meet outflows.
1.10 The PRA considers that the existing liquidity framework does not sufficiently address
such risks and this presents a strong justification for modernising it. Asking firms to self-insure by holding more liquid assets could put pressure on firms’ balance sheets and disrupt lending to the economy. This would not seem proportionate given that existing quantitative prudential standards provide a strong foundation for UK firms’ prudent liquidity risk management. The PRA considers that it would be more proportionate to supplement the existing Pillar 2 liquidity regime, including through clearer expectations for operational readiness and, as appropriate, the use of central bank facilities. Opens Opens

1.11 The PRA considers that the proposed changes to modernise the liquidity framework are
intended to enhance firms’ preparedness for any stress, including where the stress escalates towards resolution. This means that the proposed changes to enhance firms’ liquidity risk management would also strengthen their readiness for recovery and resolution scenarios.
1.12 As outlined in the discussion paper, Transitioning to a repo-led operating framework
on 9 December 2024, the Bank is moving towards a demand-driven approach, where reserves are provided in response to firms’ needs, via repo transactions, and backed by a broad mix of eligible collateral. As quantitative tightening (QT) and repayments under the Term Funding Scheme with additional incentives for SMEs (TFSME), continue to reduce the level of reserves in the system, firms will increasingly need to source sterling reserves directly from the Bank through its Sterling Monetary Framework (SMF) facilities. As those reserves fall, firms will need to actively manage the composition of their liquidity resources and consider whether and how to use the Bank’s sterling repo facilities to that end. This change re-enforces the point that borrowing using the Bank of England’s facilities will be a normal practice in business as usual.
1.13 Central bank reserves are the most liquid financial asset and are the ultimate form of
money in settlement of transactions. This does not imply that banks need to hold reserves to cover all scenarios. Indeed, the PRA’s prudential liquidity framework requires banks to hold an adequate amount of HQLA (which can include a range of asset classes including reserves), to meet obligations, and not any particular amount of reserves. Banks’ preferred composition of HQLA holdings between reserves and non-reserves will be determined by anticipated payment and liquidity needs, interest rate and other risk considerations and relative returns between assets. It also will be determined by the currency of liquidity and funding needs and associated central bank facility access.
1.14 Firms may face frictions that slow or restrict the speed of monetisation of liquid assets in
a stress. These frictions can arise in private markets (eg market depth and/or available number of counterparties), or when not operationally prepared to use central bank facilities (eg timeframe for undertaking an eligibility assessment or settlement of collateral). It is also important to clearly define risk processes for management and governance escalation to avoid further delays to monetisation actions in stress. Such frictions increase the risk that firms cannot monetise assets quickly enough to meet rapid outflows in a stress.
1.15 The PRA’s existing liquidity policy framework requires firms to manage the risk that firms
may be unable to monetise sufficient liquid assets to meet liquidity outflows in a stress. But it does not provide sufficient details on the specific aspects that firms should consider in managing this risk. Furthermore, it does not explicitly recognise the use of central bank facilities as a monetisation tool for liquidity risk management purposes. Opens

1.16 Another key issue raised by the Basel Committee’s report to G20 Finance Ministers
and Central Bank Governors in October 2024 on the 2023 banking turmoil and liquidity risk was the inclusion of assets in HQLA that have unrealised losses attached. The crystallisation of such losses would affect a firm’s Common Equity Tier 1 capital, so firms would need to consider the potential practical, capital-related obstacle to monetisation. The PRA’s existing liquidity policy framework does not require firms to consider this as a potential friction to monetisation within their stress testing.
1.17 The PRA proposes to modernise the liquidity policy framework, drawing on insights from
the March 2023 banking turmoil, and ensure preparedness for the Bank’s transition to a demand driven, repo-led framework for supplying reserves. Structure of the CP
1.18 The proposals in this CP are structured as follows within Chapter 2:

• Proposal 1: require firms to assess the composition of liquidity resources and monetisation
  risk by:
• assessing the adequacy of the composition of liquidity resources as part of overall
  liquidity adequacy rule (OLAR);
• preparing a stress scenario with sudden, severe outflows to assess their ability to
  monetise liquid assets in the initial days of a stress;
• assessing frictions to monetisation of liquidity resources as part of internal stress testing;
• broadening firms’ consideration of monetisation in internal stress testing by requiring
  them to assess ’monetisation risk’ rather than ‘marketable asset risk’; and
• removing a requirement to report ‘monetisation actions’ section of PRA110, reflecting
  greater focus on monetisation within internal stress testing and the ILAAP;
• Proposal 2: remove the exemption for Level 1 Assets (including sovereign bonds) from the
  LCR operational requirements for monetisation testing;
• Proposal 3: clarify the role of central bank facilities within the prudential liquidity
  framework, including an update to PRA expectations and policy on Bank of England facilities;
• Proposal 4: require firms to monitor and assess their pre-positioned collateral with central
  banks as an additional liquidity resource; and
• Proposal 5: Other changes.
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Changes to PRA rules and policy materials
1.19 The proposals set out in this CP would result in changes to the following parts of the
PRA Rulebook and existing policy materials:
Table A: Changes to PRA rules and policy materials
Policy material Proposals
PRA Rulebook The instrument would amend the following parts of the PRA Rulebook:
Internal Liquidity Adequacy Assessment
Liquidity Coverage Ratio (CRR)
Reporting (CRR)
Supervisory statements
(SS)
This CP would amend:
SS24/15 – The PRA’s approach to supervising liquidity and funding risk Statements of policy (SoP) This CP would amend:
SoP1/18 – Pillar 2 Liquidity
Implementation
1.20 The PRA proposes to take a phased approach to implementation.
1.21 Phase 1 would apply the following proposed requirements with immediate effect from
when the rules were made:
1.22 Phase 2 would apply all other proposed requirements 12 months from the date the final
rules were made.
1.23 This approach would be proportionate and afford a reasonable transition period for
elements that could take longer to apply or that happen as part of the SREP cycle. It would immediately modernise the PRA’s approach to central bank facilities, while also providing

• the element of Proposal 1 to cease requiring reporting of the monetisation section of the
  PRA110; and
• Proposals 3 and 4 on central bank facilities and pre-positioned collateral with central
  banks.
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firms sufficient time to prepare information and assessments as part of the internal liquidity adequacy assessment process (ILAAP) that would be reviewed by Supervisors in the subsequent liquidity supervisory risk evaluation process (L-SREP). Q1: Do you have any comments on the proposed implementation date including whether it achieves an appropriate balance between allowing firms to implement the measures set out in this CP promptly, and providing sufficient time to effectively implement the measures? Responses and next steps
1.24 This consultation closes on Wednesday 17 June 2026. The PRA invites feedback on the
proposals set out in this consultation. The PRA invites responses on any aspect of the proposals set out in this consultation, as well as any data or evidence that is pertinent to such proposals. The CP includes a number of questions to which the PRA would welcome specific responses, but the PRA would welcome responses on all aspects of the CP. The PRA also invites stakeholders to bring to the PRA’s attention, any relevant issues that are not addressed in the proposals set out in this CP. Please address any comments or enquiries to CP5_26@bankofengland.co.uk.
1.25 When providing your response, please tell us whether or not you consent to the PRA
publishing your name, and/or the name of your organisation, as a respondent to this CP.
1.26 Please also indicate in your response if you believe any of the proposals in this
consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be. 2: The PRA’s liquidity framework proposals
2.1 The PRA sets out the proposed changes to the liquidity framework, which are intended to
function as a coherent package. They are proportionate and can be appropriately applied to the given nature, scale and complexity of firm’s business models, the structure of their liquidity resources and the liquidity risks to which they are subject. This would help to ensure the proportionate application to smaller firms, including SDDTs. Opens

2.2 The proposed changes to SS24/15 – The PRA’s approach to supervising liquidity and
funding risks and PRA rules, intend to provide greater clarity of supervisory expectations on the management of liquidity risk by banks. The proposals are consistent with the Principles for Sound Liquidity Risk Management and Supervision by the Basel Committee on Banking Supervision (BCBS), and incorporate observations from PRA supervisory reviews and lessons learned from past liquidity events.[1] Proposal 1: Assess composition of liquidity resources and monetisation risk
2.3 The PRA’s existing liquidity framework requires firms to consider the risk that they may be
unable to monetise sufficient liquid assets to meet liquidity outflows in a stress. This is currently reflected in:
2.4 The PRA considers that the requirements of the existing liquidity framework do not
sufficiently address firms’ preparations for timely monetisation of liquidity resources in the face of potentially rapid outflows, which is critical for liquidity resilience. The March 2023 turmoil highlighted that very significant liquidity outflows can happen in a few days.[2] A lack of sufficient preparedness and operational capacity to quickly monetise assets via sale or repo in markets, or through other contingent sources such as central bank facilities, may impair firms’ ability to meet outflows in such a stress. Existing PRA requirements and supervisory expectations do not explicitly reflect the speed or scale of monetisation that could occur.
2.5 The PRA’s proposal to require firms to assess the composition of liquidity resources and
monetisation risk involves making or amending relevant rules within the ILAA Part of the PRA Rulebook and/or updating supervisory expectations in SS24/15. These elements of the proposal are set out in paragraphs below. Assessing the composition of liquidity resources

• the LCR Operational Requirement in LCR(CRR) Article 8 of the PRA Rulebook, which
  states firms must be ready to monetise their liquid assets at any time during the 30-day stress period (via outright sale or repo in private market);
• the reporting template PRA110, in which firms are required to report individual
  monetisation assumptions over a stress horizon; and
• the ILAA rule 11.5 of the PRA Rulebook for firms to consider 'marketable asset risk’ as a
  source of risk within internal stress testing. footnote footnote Opens

2.6 The PRA proposes to revise the Overall Liquidity Adequacy Rule (OLAR) to explicitly
clarify that firms must maintain an adequate composition of liquidity resources—as well as the amount—at all times to ensure that there is no significant risk that its liabilities cannot be met as they fall due. The composition of a firm’s liquidity resources is fundamental for its management of liquidity risk. The PRA proposes to clarify expectations for the composition of liquidity resources to reflect the firm’s ability, readiness, and willingness to convert assets into liquidity quickly enough to meet acute liquidity outflows during a stress.
2.7 The PRA proposes also to expect that the firm’s assessment of the composition of
liquidity resources would inform its judgement on the appropriate balance between the level of cash and non-cash assets to hold as part of liquidity resources, as well as the overall balance of other liquid assets that could be monetised in private markets and/or using central bank facilities. Preparing a stress scenario with sudden, severe outflows in the initial days of a stress
2.8 The PRA proposes to introduce a new requirement for firms to design a stress scenario,
relevant to their business model with sudden and severe liquidity outflows that peak during the initial days of a stress. The PRA would expect the focus of the scenario to be on the first week of a stress. This proposal would not require firms to extend this scenario beyond a 7-day horizon, but firms could choose to do so depending on their risk profile or if they chose to combine it with other scenarios. The proposed PRA expectations for the stress scenario are set out in more detail within the updates to SS24/15.
2.9 The parameters of the stress would be for a firm to design, given the nature, complexity,
and size of its business. The intention is to make the scenario relevant to each firm but allow firms to design the scenario in a way that is proportionate and minimises the implementation costs. The assessment of the source of outflows would identify the key drivers of the stress scenario and would reflect the risks specific to the nature and complexity of a firm’s balance sheet and business model. Assessing frictions to monetisation of liquidity resources
2.10 As part of their internal stress testing approach, the PRA proposes to require firms to
assess the frictions associated with monetising assets and the sources of outflows for the stress event. The frictions assessment would consider the potential risks to monetising liquidity resources that could delay or limit a firm’s ability to meet outflows as they fall due and potentially identify contingent alternatives. Opens

2.11 The assessment of frictions should cover both monetisation in private markets and use
of central bank facilities. The assessment should include any frictions internal to the firm, for example delays because of internal governance processes. The assessment should also include whether or the extent to which accounting treatment applied to liquid assets with unrealised losses attached would affect firms’ ability and willingness to monetise their liquid assets rapidly, including the impact of monetising assets on their capital ratios. Broadening firms’ consideration of monetisation in internal stress testing
2.12 ILAA rule 11.5 of the PRA Rulebook requires firms to make appropriate assumptions
around the major sources of risk, including the category marketable assets risk. The existing rule and supervisory expectations (SS24/15) associated with marketable assets risk narrowly focus on risks in the ability to liquidate or monetise assets via sale or repo.
2.13 The PRA proposes to replace the existing focus on ’marketable asset risk’ with
’monetisation risk’ in ILAA rule 11.5 of the PRA Rulebook and set out more detailed expectations for the risk assessment in SS24/15. The expectations would provide further details to consider in the ability to monetise assets via sale or repo including market access, accounting treatment, and use of central bank facilities. The PRA also proposes to provide an illustrative template in SS24/15 to assist firms in presenting the assessment, with the information provided expected to be proportionate to a firm’s liquid asset portfolio. Removing a requirement to report ‘monetisation actions’ section of PRA110
2.14 Given the proposed changes outlined above, the PRA proposes to amend the
Regulatory Reporting Part of the PRA Rulebook to remove the requirement for a firm to report monetisation assumptions from the PRA110 reporting template. The PRA would not change the PRA110 reporting template itself at this point but proposes that firms would not be expected to complete the section for the monetisation assumptions from the point the final rules are published. The PRA considers that this would avoid delay and enable firms and the PRA to focus on the internal liquidity stress testing for the assessment and supervision of monetisation risk. The PRA invites feedback on whether this proposal could materially affect firms’ validation processes due to internal system settings. The PRA intends to consider deleting the relevant rows of the template in due course.
2.15 The proposed changes to the PRA rules and SS24/15, are designed to apply
proportionately to each firm’s business activities and liquidity resources. For example, the PRA considers that a firm with no or minimal monetisation risk could meet these requirements and expectations with a simpler assessment on monetisation risks in their stress testing, focusing on elements such as assumed methods of monetisation, haircuts and rationale for Opens

those assumptions, as further set out in the proposed Appendix 3 of SS24/15. The proposals are designed to be capable of being implemented in a way that is appropriate to the nature, scale and complexity of a firm's activities and risks. Proposal 2: Remove exemption for Level 1 Assets (including sovereign bonds) from the LCR Operational Requirement for monetisation testing
2.16 The existing Liquidity Coverage Ratio (CRR) Article 8(4) of the PRA Rulebook relates to
Operational Requirements, and requires firms to monetise, at least annually, a sufficiently representative sample of their holdings of liquid assets by means of outright sale or simple repurchase agreement on a generally accepted market. This testing requirement does not apply to Level 1 Assets referred to in Liquidity Coverage Ratio (CRR) Article 10 of the PRA Rulebook, other than extremely high-quality covered bonds. As an example, this means that firms’ holdings of sovereign bonds eligible as Level 1 Assets are currently exempt from this operational requirement.
2.17 The PRA proposes to remove the exemption for Level 1 Assets from the LCR
operational requirement for monetisation testing. This means that there would cease to be an exemption for assets from the operational requirement in Liquidity Coverage Ratio (CRR)
Article 8(4) of the PRA Rulebook.
2.18 This proposal would be consistent with Basel’s approach to monetisation testing in the
international standard LCR, and would align with the emphasis placed on reliable and speedy monetisation in Proposal 1 of this CP.
2.19 The PRA considers that a lack of preparedness and operational capacity to quickly
monetise liquid assets would be likely to impact firms’ ability to meet outflows, especially at speed. Testing operational capabilities is a key part of identifying barriers or frictions within firms’ operational capabilities and processes, as well as enhancing understanding of market structures and capacity. With the Bank’s transition to the demand driven, repo-led framework for supplying reserves, firms will likely need to use central bank facilities to access reserves. This emphasises the importance of firms being operationally prepared to monetise eligible assets, including sovereign bonds, in a stress. Opens

Proposal 3: Clarify the role of central bank facilities within the prudential liquidity framework
2.20 The Bank uses its balance sheet to meet its statutory objectives of monetary and
financial stability, and provide a range of facilities and operations, available on published terms to eligible financial firms. Since February 2022, the Bank has been transitioning to a repo-led, demand driven framework for supplying reserves. The availability of these regular facilities, and the stock of liquid assets firms hold under prudential liquidity requirements (eg LCR), together mean that banks can now make use of significantly more liquidity, in a more reliable and timely manner, than was the case through the GFC. This reduces the risk that banks experiencing unexpected liquidity needs struggle to secure the liquidity they need. That, in turn, helps to support depositors’ and creditors’ confidence in PRA regulated firms.
2.21 Existing PRA rules and supervisory expectations do not consistently reflect the PRA’s
approach of expecting firms to consider central bank facilities within liquidity risk management. ILAA rule 2.2 of the PRA Rulebook, provides clarity on the exclusion of emergency liquidity assistance from central banks in the overall liquidity resources used to meet the OLAR, but does not address whether other central bank facilities that are regularly available at published terms could be considered available for those purposes. The PRA considers further clarification of the role of central bank facilities in liquidity management to be needed to enhance operational readiness to monetise assets and to align the PRA approach with the Bank’s transition to a repo led demand driven framework for the supply of reserves.
2.22 Central bank facilities are also excluded from use as a monetisation channel in PRA110
submissions under the Granular LCR (GLCR) framework (Pillar 2 statement of policy). As a result, this element of reporting helps ensure firms measure their liquidity self-insurance capabilities but may not show a complete picture of a firm’s liquidity resilience. It also does not reflect the PRA’s approach of expecting firms to consider of central bank facilities within liquidity risk management. As set out in Proposal 1, the PRA proposes to remove the requirement for a firm to report ‘monetisation actions’ section of the PRA110 reporting template. Consistent with this proposal, the PRA proposes to amend the Pillar 2 statement of policy such that it would no longer reference central bank facilities in the assessment of monetisation actions as part of the PRA110 reporting template.
2.23 To ensure consistency with the Bank’s transition to a demand driven and repo-led
framework, the PRA also proposes updates to supervisory expectations within SS24/15. The proposed amendments to Chapter 5 of SS24/15, ’Bank of England market operation facilities’, would provide a clearer and updated overview of the PRA’s view of firms’ use of Sterling Monetary Framework facilities regularly available at published terms[3]. If a firm planned to rely on foreign central bank facilities in a stress, the proposals would require it to ensure it has footnote Opens

sufficient certainty of access to those facilities, for example, by confirming that the facilities are available and open for business, with clear eligibility criteria, access conditions and pricing.
2.24 The Federal Reserve’s review of the Supervision and Regulation of Silicon Valley Bank
Financial Group (SVBFG) and its failure during the March 2023 banking turmoil highlighted that SVBFG had limited collateral pledged to the Federal Reserve’s discount window, had not conducted test transactions, and was not able to move securities collateral quickly from its custody bank or the FHLB to the discount window. While contingent funding may not have been able to prevent the failure of the bank after the historic run on the bank, the lack of preparedness may have contributed to how quickly it failed.[4] Evidence from the Basel Committee and the Financial Stability Board on that period reinforces the lesson that in periods of stress, central bank facilities can only serve their role if firms have pre-positioned sufficient collateral, tested access arrangements, and ensured operational capability. [5], [6]
2.25 To enhance firms’ preparedness for more severe stress scenarios, the PRA proposes to
clarify that firms may include drawings from central bank facilities, that are regularly available and offered at published terms, as part of OLAR and within internal stress testing. But the PRA would continue to require that firms may not include liquidity resources made available through emergency liquidity assistance from a central bank for the purpose of OLAR.
2.26 The PRA also proposes to require that where firms include central bank facilities
available at published terms as part of OLAR and stress testing that they are operationally ready to use those facilities. This means that firms should ensure that they meet the eligibility criteria and have taken operational steps to prepare to use the facilities, for example this could include, but is not limited to, signing up to access to the Sterling Monetary Framework, prepositioning eligible collateral, and testing or live use of the facilities. The PRA also proposes to expect firms to have internal systems and processes in place, including governance structures, to enable operational readiness to use facilities.
2.27 The PRA would maintain its existing position that firms may only count pre-positioned
collateral to meet the PRA’s quantitative liquidity guidance if these assets are eligible for inclusion as HQLA in the LCR (CRR). If pre-positioned collateral is not eligible for inclusion as HQLA in the LCR (CRR), it could not be used to meet the PRA’s quantitative liquidity guidance. Proposal 4: Managing collateral
2.28 Developments in digital banking, payments and communications increase the risk that
the size and scale of outflows could surpass those experienced in previous liquidity stresses. The scale of potential future liquidity shocks and risks beyond those covered by a firm’s footnote Opens

internal stress testing would be difficult to predict with accuracy or to address within a single stress scenario embedded in the regulatory framework. However, the available sources of liquidity a firm has beyond those required to meet the OLAR, provide useful insight into its potential resilience to a more severe stress.
2.29 Firms possess a valuable source of such additional liquidity resilience from assets pre￾positioned with central banks. Those assets can be monetised swiftly and with a high degree
of certainty, given that all necessary due diligence has already been completed in advance and firms have the necessary processes and governance structures established.
2.30 Existing ILAA rules require firms to actively manage collateral positions and distinguish
between pledged and unencumbered assets that are always available. The PRA currently expects firms with access to central bank facilities to have sufficient levels of pre-positioned collateral, and supervisors place emphasis on firms assessing the appropriate amount of collateral for use with central banks. The rules and expectations are currently limited to ensuring firms monitor and manage readiness to use collateral with central banks. Monitoring and assessing central bank drawing capacity
2.31 The PRA proposes to amend ILAA rule 7 of the PRA Rulebook on the management of
collateral, to require firms to assess and monitor the adequacy and amount of central bank drawing capacity in relation to their pre-positioned collateral after the application of any relevant haircuts. The PRA proposes to expect firms to present information in the ILAAP document on the levels of drawing capacity across all legal entities with central banks, taking into account the currency. This explicitly includes access and available collateral to use with foreign central bank facilities.
2.32 The PRA proposes to set out illustrative guidance on the type of information that should
be included in the ILAAP, noting there could be appropriate adjustments depending on the circumstances of the individual firms and that, SDDTs in particular, may take a proportionate approach. The PRA would also expect firms to consider the appropriateness of this drawing capacity as liquid resources as part of OLAR and include related information within the ILAAP. Measuring additional drawing capacity
2.33 The PRA proposes to amend ILAA rule 11.3C of the PRA Rulebook, to require firms to
calculate the amount of liquidity resources that would be available to it if the firm were to draw in full against all its pre-positioned collateral at central bank facilities. This would reflect the amount of liquidity resources it has in excess of those required to meet its most severe Opens

internal stress test that would be available if needed. This would provide firms, and therefore supervisors, with a complete picture of additional liquidity resources available in a severe stress for further unexpected shocks. Non-prepositioned unencumbered assets
2.34 As part of the proposed changes to supervisory expectations on collateral, firms would
also be expected to estimate the amount of additional unencumbered assets that are not prepositioned but may be eligible as central bank collateral. In preparing this information, firms would be expected to consider, the frictions to timely mobilisation of these assets, such as legal restrictions or operational impediments from third party funding providers. This is consistent with Proposal 1.
2.35 The PRA considers these unencumbered, non-prepositioned assets an important
element in enhancing firms’ operational readiness for stresses that could be larger than previously assumed. It would build firms capabilities to enhance preparation for wider recovery and resolution scenarios. The PRA intends to maintain its current position that these unencumbered, non-pre-positioned assets cannot be considered as part of the OLAR and, therefore, cannot be counted to meet outflows in firms’ internal stress testing. Governance and proportionality
2.36 The PRA proposes to clarify that it would expect the assessment of pre-positioned
collateral, as a part of the stress testing approach set out in the ILAAP document, to be reported to and approved by the firm’s management body. The PRA considers that this would enhance clarity and accountability, without creating added compliance burden. This intends to support operational readiness, including ensuring firms’ governance structures and processes enable expedited escalation channels in stress.
2.37 The proposed changes to the PRA rules and SS24/15 would apply proportionately to
each firm’s business activities and characteristics of its liquidity resources. Firms would have a high degree of discretion on how to conduct the assessment of additional resilience, with proposed changes to SS24/5 providing additional guidance. Where firms did not hold central bank pre-positioned collateral, they would not need to complete the assessment. Proposal 5: Other changes
2.38 The proposals described above prompt a number of other targeted changes required to
embed the proposed changes within the framework and ensure consistency in the ILAA rules and supervisory expectations. The changes fall into two categories:
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Clarifications for consistency
2.39 To ensure consistency with Proposals 1 and 3—on liquidity resource composition and
monetisation risk, and the role of central bank facilities—the PRA proposes to clarify in ILAA rule 3.1 of the PRA Rulebook that firms are expected to have in place robust strategies, policies, processes and systems to ensure they maintain an appropriate composition of liquidity buffers, and as appropriate, of pre-positioned collateral with central banks, as well as adequate levels of liquidity buffers.
2.40 To ensure consistency with Proposal 1, the PRA proposes to clarify in supervisory
expectations, that firms should take any potential limitations to monetisation of liquidity resources into account when setting their liquidity risk appetite.
2.41 To ensure consistency with Proposals 1–3, the PRA proposes to embed clear
governance expectations for the preparation of the ILAAP document, review of liquidity resources under OLAR and operational readiness to monetise assets, including use of central bank facilities. In addition, the PRA proposes to clarify expectations for effective senior Asset and Liability Management (ALM) committees by drawing on key aspects of good practice observed, reinforcing the importance of strong governance over liquidity risk management in the ILAAP.
2.42 To ensure consistency with Proposals 1–3, the PRA proposes to update expectations for
LCPs. LCPs are fundamental for operational readiness within firms’ broader liquidity risk frameworks. The PRA considers it important that there is a clear link to risks emerging from stress testing and the ILAAP are appropriately reflected in LCPs. Streamlining
2.43 The PRA proposes to streamline SS24/15, simplifying the document’s structure and
removing the duplication of supervisory guidance. This aims to improve clarity and reduce interpretive burden for firms. The streamlining would include:

• Clarifications for consistency: The PRA proposes to clarify ILAA rules and supervisory
  expectations regarding ILAAP governance, risk appetite, Liquidity Contingency Plans (LCP), and funding plans to ensure their consistency with Proposals 1–4; and
• Streamlining: The PRA also proposes to streamline some of the content and to remove
  legacy references to the European Banking Authority (EBA) guidelines currently included in these sections of SS24/15.
• Focusing and consolidating the PRA’s supervisory expectations on monetisation risk;
• Distinguishing its guidance on how to comply with HQLA eligibility criteria in the LCR rule
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2.44 The PRA proposes to replace redundant references to the EU’s LCR Delegated Act with
the relevant parts of the PRA’s Rulebook, to better align policy documents with PRA rules and to ensure flexibility for future PRA rule-making.
2.45 The PRA also proposes to remove references to other EU supervisory documents, like
the EBA SREP supervisory guidelines, incorporating relevant key elements into the PRA’s supervisory expectations when necessary. In the case of funding plans, the PRA proposes to clarify in SS24/15, that funding plans should be integrated within a firm’s strategic plan and consistent with its business model, should identify the relevant funding markets and the expected time horizon for switching funding sources, and the required level of governance for the plans. Funding plans, like LCPs, are by nature proportionate to the complexity and scale of the firm.
2.46 Lastly, the PRA proposes to move and reframe certain paragraphs in SS24/15 to
improve clarity and readability. Where sections have been superseded, some paragraphs would be deleted, and new information would be included. 3: PRA objective analysis
3.1 The paragraphs below analyse the impact of the PRA’s proposals against PRA
objectives.
The PRA’s primary objective:
3.2 The PRA assesses there to be a risk to the PRA’s primary objective of safety and
soundness of firms if they do not adequately assess the composition of liquidity resources. There is risk of disorderly failure of firms without sufficient liquidity resources that in practice could be monetised in response to a sudden and severe stress scenario. Firms need to consider the risk that the composition of liquid assets may not adequately reflect what would be required to meet outflows in a sudden and severe stress scenario. There is a risk that firms cannot suitably meet outflows if frictions to monetisation risk have not been appropriately addressed. from broader guidance on the management of liquidity and monetisation risk; and

• Reflecting the Bank’s transition to a demand driven repo‑led framework for supplying
  reserves. Section 5 of SS24/15 would focus on the Sterling Monetary Framework and the facilities regularly available at published terms, with previous, less relevant paragraphs removed for clarity. Opens

3.3 Overall, the PRA considers that the proposed policy changes would support firms’
resilience by promoting and sharpening firms’ focus on a proportionate approach to the management of liquidity resources, and strengthening firms’ ability to manage liquidity risks under different stress scenarios. The policy proposals collectively would:
The PRA’s secondary objectives:
3.4 The PRA has assessed whether the proposals would facilitate effective competition, the
international competitiveness of the economy and the growth of the economy in the medium to long term.
3.5 The PRA considers that the proposals would not have an adverse impact on effective
competition. The proposed framework is designed to be flexible and proportionate, allowing for their application across a diverse range of firms and business models. This flexibility is intended to enable firms to design their liquidity assessments in a manner that reflects their specific risk profiles and operational structures.
3.6 The PRA considers that the proposals would be supportive of the competitiveness and
growth objective. The proposals would be directionally positive for growth, as they would maintain confidence in the financial system, and thus help to position firms to continue to serve the economy in the face of future liquidity shocks—and underpin confidence across the banking system in a stress, reducing risks to financial stability and supporting sustainable financial intermediation. However, the PRA does not expect this effect would be significant. The proposals are also designed to be targeted and proportionate which would help to ensure they would not have a material adverse impact on UK firms’ competitiveness, by avoiding imposing additional material costs on firms.

• ask firms to hold adequate liquidity resources for stress scenarios most relevant to the
  nature scale and complexity of their business;
• enhance firms’ operational preparedness for a sudden and severe stress and mitigate risks
  to reduce the likelihood of disorderly failure;
• require firms to identify and reduce monetisation frictions within their control for liquidity
  planning;
• expect a more robust assessment of total liquidity resources by requiring firms to evaluate
  how collateral with central banks contributes to their ability to withstand more severe stresses; and
• promote firms’ building operational readiness to access central bank facilities quickly into
  liquidity management planning, which could also increase their preparedness for monetising assets in stress, including recovery and resolution. Opens

3.7 In addition, the proposals set out in this CP align to the international approach set out in
the Basel report on the 2023 banking turmoil that prioritises work to strengthen supervisory effectiveness. The proposed developments in liquidity risk management also align to the existing Principles for Sound Liquidity Risk Management.[7] PRA ‘Have regards’ analysis
3.8 In developing these proposals, the PRA has had regard to the FSMA regulatory principles
and the aspects of the Government’s economic policy as set out in the HMT recommendation letter from November 2024. The following factors, to which the PRA is required to have regard, were significant in shaping the design of the policy proposals:

1. Proportionality and recognition of differences in business models (FSMA regulatory
   principles):
2. Regulatory environment which facilitates growth (The HMT recommendations letter
   to PRC November 2024)

• In developing these proposals, the PRA has had regard to the principle that any burden or
  restriction imposed on firms should be proportionate to its expected benefits.
• The PRA has designed its proposals to ensure proportionality by the flexibility built into the
  application of each proposal.
• The approach is designed to build on firms’ own understanding of their business models
  and risks, providing flexibility to determine how the proposed requirements and expectations would affect the liquidity resources a firm holds.
• This means the proposals are targeted and proportionate by design and the application of
  new requirements and expectations would reflect the nature, scale, and complexity of firms’ business models.
• The PRA considers that these proposals would help to support sustainable UK economic
  growth by strengthening firms’ liquidity resilience.
• Enhanced resilience would better prepare firms to continue to provide lending to the real
  economy in the event of future liquidity shocks—the PRA expects they would also support depositor confidence and reduce the risk of firm failures during periods of acute or prolonged liquidity stress.
• The approach also explicitly recognises the role of central bank facilities in meeting internal
  stress testing requirements. This clarifies how such facilities will be treated within the UK supervisory framework, informing views of the liquidity resources firms need to hold and access to central bank facilities.
• The proposed amendments would help to improve sector-wide stability. As a result, the
  footnote
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3. Maintaining and enhancing the UK’s position as a world-leading global financial hub
   (The HMT recommendations letter to PRC November 2024):
   3.9 The PRA has had regard to other factors as required. Where analysis has not been
   provided against a ‘have regard’ for this disclosure, it is because the PRA considers that ‘have regard’ is not significant in influencing this proposal. 4: Cost benefit analysis (CBA)
   4.1 This section sets out the summary of the PRA’s analysis of the expected costs and
   benefits associated with implementing the proposals outlined in this CP. For the full CBA analysis, please refer to Appendix 4. CBA Panel
   4.2 The PRA consulted the PRA’s CBA Panel. As set out in Appendix 4, the Panel provided
   valuable feedback and suggested several changes, which are reflected in this CP. The core challenges identified by the Panel were:
   PRA considers the proposals would have a directionally positive effect on economic growth and sustainable growth—however, it is difficult to assess the materiality of the potential effect, which would also depend on the nature and scale of any future liquidity shock and the choices made by firms in preparing for them.

• The PRA assesses that the proposals would align with the Basel Committee’s existing
  liquidity standards and guidance, particularly in relation to the Basel Committee’s Principles for Sound Liquidity Risk Management and Supervision, it would support consistency in regulatory expectations across jurisdictions, while ensuring the framework remains appropriate for the UK context.
• The proposal to remove references to EU materials would also help reduce the complexity
  and compliance cost of the approach, by removing the need for firms to refer to and work out how those materials should relate to the UK’s approach.
• Case for action: The Panel recommended the PRA expands the market failure analysis,
  including highlighting the differences between large and small firms and the role of moral hazard.
• Baseline: Panel members queried the extent to which firms already have some of the
  capabilities required by the proposals (eg as part of Recovery planning), and for this to be Opens

CBA summary
4.3 The PRA’s liquidity framework, designed after the 2007/08 GFC, has been effective in
strengthening firms’ liquidity resilience and supporting market confidence during episodes such as the Covid-19 stress. However, recent events—most notably the March 2023 banking turmoil—have revealed structural gaps. Liquidity outflows can occur far more rapidly than the LCR presumes, driven by digital deposit access and accelerated communication dynamics.
4.4 These vulnerabilities are amplified by information asymmetries and externalities inherent
in banking. Digitalisation increases the risk of rapid runs, while the failure of one institution can more quickly undermine trust across the system. Moral hazard also persists if firms implicitly rely on central bank support rather than maintaining appropriate operational readiness. Moreover, smaller firms in particular, may not conduct initial-day stress tests and may not sufficiently consider monetisation frictions or their ability to access central bank liquidity. As aggregate reserves decline under quantitative tightening (QT), underestimating these risks becomes increasingly destabilising. The proposed policy aims to address these issues.
4.5 The benefits of the proposals stem from strengthening firms’ liquidity resilience and
ensuring confidence during periods of stress. The policy proposals reduce reliance on emergency interventions and support a more consistent liquidity risk management across firms. Until all firms are sufficiently prepared, there is a risk that, in certain scenarios, the PRA's current liquidity regime would not operate as intended to support market confidence and financial stability. In those scenarios, disorderly failures may occur and, given asymmetric information, concerns about gaps in firms’ capabilities could also become an additional factor which undermines market confidence and contributes to the propagation of financial crisis—with material negative impacts on PRA firms, the markets they operate in, and the wider UK economy. These proposals address those risks and, therefore, have the potential to bring material benefits. reflected in the baseline section and the assessment of costs and benefits.

• Direct costs: The Panel requested a more detailed breakdown of the cost estimates and
  questioned the balance between one-off and ongoing costs, noting one-off costs may be overstated.
• Benefits and overall assessment: The Panel requested more quantitative information on
  benefits and a clearer comparison of costs and benefits, suggesting a break-even analysis to contextualise the estimated costs relative to the benefits. Opens

4.6 The PRA estimates direct one-off compliance costs of around £7.2 million across all firms,
with ongoing costs of roughly £0.6 million per year, mainly related to updating policies, processes, systems, and training. Additional indirect costs may arise as firms adapt the composition of their liquidity resources and refine collateral management practices, however, the aggregate impact on interbank, gilt, repo and money markets is expected to be minimal.
4.7 Overall, the PRA concludes that the benefits of the proposals would stem from
strengthening firms' liquidity resilience and bolstering confidence during periods of stress. Even a small reduction of the potential impact of a systemic liquidity crisis would bring material benefits in the financial system. The estimated annualised costs are not material in the context of firms’ overall risk‑management and compliance costs. There remains some uncertainty with the estimates given variability in current firm practices and the proposals are intended to be adaptable to different business models, risk profiles, and operational approaches. Q2: Do you have evidence relating to the impact of these proposals on firms’ operational compliance costs or balance sheets? 5: Other legal requirements Statutory Duty to Consult
5.1 The PRA has a statutory duty to consult when [introducing new rules/changing rules]
(FSMA s138J), or new standards instruments (FSMA s138S). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so.
5.2 The PRA’s Cost Benefit Analysis (CBA) Panel was consulted on the CBA. The summary
CBA is set out in Chapter 4 and detailed CBA analysis can be found in the annex of this CP. The Practitioner Panel was consulted on the key proposals in this CP in 2025. Impact on mutuals
5.3 The PRA considers that the impact of the proposed rule changes on mutuals is expected
to be no different from the impact on other firms.
Equality and diversity
5.4 In developing its proposals, the PRA has had due regard to the equality objectives under
s.149 of the Equality Act 2010. The PRA considers that the proposals do not give rise to equality and diversity implications. Opens

1. Principles for Sound Liquidity Risk Management and Supervision .
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2. For example, the Basel Committee’s progress report on the 2023 banking turmoil and liquidity risk (October 2024) states
   that Silicon Valley Bank would have experienced 85% of total deposit outflows over 2 days, and Credit Suisse experienced 25% of total deposit outflows over 7 days.
3. SS24/25 – The PRA’s approach to supervising liquidity and funding risks
4. Federal Reserve Board - Federal Reserve Board announces the results from the review of the supervision and
   regulation of Silicon Valley Bank, led by Vice Chair for Supervision Barr . Opens
5. Report on the 2023 banking turmoil .
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6. Depositor Behaviour and Interest Rate and Liquidity Risks in the Financial System: Lessons from the March
   2023 banking turmoil – Financial Stability Board .
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7. BCBS Principles for Sound Liquidity Risk Management and SupervisionOpens
   Appendices
   Appendix 1: Draft PRA Rulebook: CRR Firms, Non-CRR Firms: Liquidity Instrument [2026]OPENS
   Appendix 2: Draft amendments to SS24/15 – The PRA’s approach to supervising liquidity
   and funding risksOPENS
   Appendix 3: Draft amendments to SoP1/18 – Pillar 2 liquidityOPENS
   Appendix 4: Cost Benefit AnalysisOPENS
   ©2026 Bank of England
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