FPC October 2025: New Gilt Repo Reforms and Bank Resolution Tools Explained

Introduction
In October 2025, the Bank of England’s Financial Policy Committee (FPC) unveiled a set of reforms designed to strengthen the resilience of the UK’s financial system. The reforms center on changes to gilt repo markets and the introduction of new bank resolution tools. These measures reflect the lessons learned from recent periods of market stress and aim to safeguard financial stability while maintaining the smooth functioning of core funding markets. For policymakers, the challenge is to balance flexibility with control, ensuring that the financial system can absorb shocks without transmitting them into the broader economy.

Understanding the Context
The UK gilt market plays a vital role in financial stability. It provides the backbone for government borrowing, monetary policy operations, and collateralized financing across the banking system. The market turmoil following the pension fund liquidity crisis in 2022 revealed structural weaknesses in the way gilt repos were managed. During that episode, sudden volatility in long-dated gilt yields forced funds to sell assets rapidly to meet margin calls, amplifying price swings and straining liquidity.

Since then, regulators have worked to enhance the resilience of funding markets. The FPC’s October 2025 reforms build on earlier initiatives to improve liquidity management and collateral frameworks. The goal is to prevent similar feedback loops from reemerging during future shocks. The new framework emphasizes transparency, risk control, and the development of a more robust repo market infrastructure.

What the Gilt Repo Reforms Involve
At the heart of the new reforms is an updated approach to the gilt repo market. Repos, or repurchase agreements, allow institutions to borrow cash by pledging government bonds as collateral. They are essential for liquidity in both the banking sector and the wider financial system. However, the events of 2022 and 2023 demonstrated that reliance on short-term repo funding could become a vulnerability under stress.

The 2025 reforms introduce several key changes. First, the Bank of England will expand the scope of eligible counterparties that can access its Sterling Monetary Framework facilities. This inclusion aims to provide a backstop for non-bank financial institutions such as pension funds and insurers, enabling them to obtain short-term liquidity without resorting to fire sales.

Second, the FPC has approved the establishment of a permanent standing repo facility. This tool allows the Bank to provide liquidity to the market against high-quality collateral on demand. By creating a predictable source of funding during volatility, the facility is expected to smooth interest rate fluctuations and prevent disruptions in the gilt market.

Third, the reforms introduce new reporting and transparency requirements for repo transactions. Market participants will be required to disclose more detailed data on collateral usage, counterparties, and maturity profiles. This will give regulators greater visibility into leverage and interconnected exposures across the financial system.

Bank Resolution Tools and Their Importance
Alongside the repo reforms, the FPC has also updated its framework for bank resolution. The goal is to ensure that failing institutions can be wound down in an orderly manner without disrupting the broader system or requiring taxpayer support. The new tools strengthen the Bank’s ability to manage crises while maintaining public confidence in the safety of deposits.

The reforms include enhancements to the Minimum Requirement for Own Funds and Eligible Liabilities (MREL), which dictates the amount of loss-absorbing capital that large banks must hold. Institutions will now have clearer guidance on how these resources can be deployed in a resolution scenario. The FPC has also introduced new rules for cross-border coordination, ensuring that UK banks with international operations can be resolved efficiently in cooperation with foreign regulators.

Another key measure is the establishment of a central data repository for bank resolution planning. This system will allow authorities to monitor exposures, liquidity positions, and collateral flows in near real time. In practice, this means that if a large institution faces distress, the Bank of England can quickly assess contagion risks and deploy targeted interventions.

Implications for the Market and the Economy
The combined impact of these reforms is significant. By improving liquidity backstops and tightening data oversight, the Bank of England aims to reduce the likelihood of market dislocation spreading through the financial system. A stronger repo market should also enhance the transmission of monetary policy, allowing changes in the Bank Rate to pass smoothly through to market interest rates.

For financial institutions, the new rules create both opportunities and responsibilities. Banks and non-bank financial intermediaries will benefit from greater certainty about the availability of liquidity under stress. However, they will also face more stringent reporting requirements and higher expectations for risk management. The cost of compliance may rise in the short term, but the long-term payoff will be a more stable and transparent system.

Investors in government securities are likely to welcome the reforms. A more resilient gilt market should reduce volatility in bond yields, supporting confidence among both domestic and international investors. For the broader economy, smoother functioning of the repo market means fewer disruptions to credit flows and investment.

Industry and Policy Reactions
Reactions from the financial industry have been largely positive. Market participants view the standing repo facility as a milestone that will reduce liquidity risk during stress events. The expanded access for non-bank institutions is seen as a pragmatic acknowledgment of their growing role in financial intermediation. However, some firms have raised concerns about potential moral hazard, warning that easier access to central bank liquidity could encourage risk-taking.

Policy analysts also note that the success of these reforms will depend on coordination with other global regulators. Given the interconnected nature of repo markets, inconsistencies between jurisdictions could create arbitrage opportunities or regulatory gaps. The Bank of England has therefore committed to close collaboration with the European Central Bank, the Federal Reserve, and the International Monetary Fund to align standards.

Looking Ahead
The FPC’s October 2025 reforms represent a step forward in modernizing the UK’s financial architecture. They reflect a broader global trend toward proactive stability management rather than reactive crisis intervention. As markets evolve and non-bank financial institutions grow in importance, central banks must adapt their toolkits to address new forms of risk.

In the coming years, the Bank of England plans to review the impact of these changes and refine its approach as necessary. The success of the reforms will ultimately be judged by how well the financial system withstands the next period of stress. If liquidity remains stable, credit continues to flow, and confidence in UK markets stays strong, the reforms will have achieved their goal.

Conclusion
The FPC’s latest measures underscore a critical principle of modern central banking: financial stability is a continuous process, not a one-time achievement. By reinforcing gilt repo markets and updating bank resolution tools, the Bank of England is building a framework designed to withstand future shocks. These steps will not eliminate risk, but they will make the financial system more adaptable and resilient. As global markets remain unpredictable, this proactive and measured approach positions the United Kingdom to navigate uncertainty with greater confidence.