Central banks rely on collateralised lending as their primary instrument for managing system-wide liquidity, both in normal times through monetary policy operations and in stress through lender-of-last-resort (LOLR) facilities. The effectiveness of such lending depends critically on whether eligible collateral can be mobilised quickly and reliably at the moment of need. This is the fundamental rationale for collateral pre-positioning — the process by which assets are identified, documented, legally assessed, valued, and earmarked in advance so that a bank can draw central bank liquidity rapidly without operational delays.
Pre-positioning reduces frictions that could undermine liquidity provision during stress episodes. Without pre-positioned collateral, a sudden demand for central bank funds can be frustrated by documentation gaps, legal uncertainty, or valuation difficulties — particularly when assets are illiquid credit claims rather than traded securities. Recent benchmark evidence suggests that roughly half of surveyed central bank jurisdictions now formally deploy collateral pre-positioning, with adoption expanding in the aftermath of the 2008 global financial crisis and the 2023 banking turmoil.
This article provides a structured literature review and cross-country analysis of how collateral pre-positioning works, how it varies internationally, and what determines its effectiveness
Conceptual Foundations
Collateral in Central Bank Operations
Central banks accept collateral as security for credit provided in monetary policy operations and emergency facilities. The design of a collateral framework involves several interconnected decisions: which counterparties are eligible; what assets are acceptable; how they are valued; what haircuts are applied; and how encumbrance is managed. Gray, Chailloux, and McCaughrin (2008) identify these as the five core dimensions of any collateral framework and argue that each dimension reflects a trade-off between risk management and the breadth of access to central bank liquidity.
The BIS (2015) emphasises that collateral frameworks also have important spill-over effects on private collateral markets, influencing the supply and pricing of high-quality assets, collateral velocity, and market resilience. A well-designed framework thus serves both the central bank’s own risk management objectives and the broader functioning of financial markets.
The Role of Pre-Positioning
Pre-positioning refers to a process that goes beyond maintaining a general list of eligible assets. It involves the bank submitting detailed information — loan tapes, origination policies, servicing data, legal documentation — so that the central bank can perform thorough due diligence before any borrowing takes place. Once pre-positioned, assets can be drawn against rapidly, often on the same day, removing the operational bottleneck that would otherwise impair LOLR effectiveness.
Pre-positioning is particularly important for illiquid collateral such as loan portfolios. Unlike sovereign bonds, which can be posted almost instantaneously, credit claims require extensive legal and valuation work that cannot be compressed into a crisis window. This makes pre-positioning a form of operational insurance: the cost of compliance is borne in calm times to preserve optionality in stress.
Theory of Collateral for the LOLR
Repullo (2021) develops a theoretical model in which the optimal design of collateral policy for the LOLR depends on whether collateral is observable and verifiable. He shows that accepting a wider range of collateral — including lower-quality assets — can be welfare-improving in certain stress states, provided haircuts are appropriately calibrated to account for credit, liquidity, and legal risk. The model rationalises the broad collateral policies observed at the ECB and BoE while also highlighting the moral hazard risks of overly accommodative frameworks. Complementary theoretical work presented at the New York Fed (2017) similarly argues that LOLR collateral policy involves a trilemma between breadth of access, risk control, and market discipline.
Operational Mechanics of Pre-Positioning
A typical pre-positioning process involves several sequential steps:
- Counterparty eligibility assessment — the bank must be an approved participant in the central bank’s operations.
- Asset identification and pool construction — the bank proposes a pool of assets (e.g. residential mortgages, corporate loans) with information on homogeneity, concentration, granularity, and size.
- Due diligence and legal review — the central bank reviews origination and servicing policies, assesses legal ownership and enforceability of security interests, and identifies structural risks.
- Valuation and haircut-setting — the central bank assigns a value to the pool and determines the applicable haircut based on credit risk, liquidity, currency, and maturity.
- Operational testing — some central banks (e.g. BoE) conduct periodic exercises to ensure that pre-positioned collateral can actually be mobilised when needed.
- Ongoing reporting and maintenance — the bank continues to provide updated loan-level data and notify the central bank of material changes to the pool.
The Bank of England’s detailed guidance notes that the pre-positioning process is designed to assure the Bank that it can “efficiently and effectively value and risk manage the assets — and that we can confidently take legal ownership of the assets if necessary.” This operational rigour distinguishes pre-positioning from mere eligibility listing
Cross-Country Practices
The following table summarises current practice on collateral pre-positioning across key jurisdictions. While common principles apply, the depth and sophistication of pre-positioning frameworks varies considerably.bis+3
Table 1: Cross-Country Collateral Pre-Positioning Practices
| Country / Area | Current Practice | |
| Euro area (Eurosystem) | Broad collateral pool including marketable securities (sovereign, supranational, covered bonds, corporate, ABS) and non-marketable credit claims; harmonised eligibility criteria, valuation, and haircuts set ex ante; assets mobilised into counterparty pools; cross-border mobilisation via the Correspondent Central Banking Model (CCBM); Eurosystem Collateral Management System (ECMS) launched to harmonise further | |
| United Kingdom (Bank of England) | Three-tier collateral framework (Levels A, B, C); loan portfolios as Level C collateral must be formally pre-positioned; detailed loan-level data templates, due diligence on origination/servicing, eligibility checks, and haircut-setting completed before mobilisation; annual review cycle; explicit emphasis on legal ownership assurance in stress | |
| United States (Federal Reserve) | Depository institutions pre-pledge collateral to Reserve Banks under Operating Circular 10; securities can be pledged quickly; loan collateral requires more elaborate legal filing; analysis confirms that institutions with pre-pledged collateral are significantly more likely to use the discount window in stress; post-2023 reform drive to reduce stigma and broaden pre-pledging | |
| Japan (Bank of Japan) | Pooled collateral framework for funds-supplying operations; broad eligible set including JGBs, municipal and corporate bonds, ABCP, and some loan-backed assets; assets pre-assessed, valued, and margined before mobilisation; framework explicitly supports both monetary operations and crisis-time liquidity | |
| Emerging Markets (EMEs) | Typically narrower eligibility focused on domestic government securities; pre-positioning less formalised — many rely on general eligibility lists and conservative across-the-board haircuts; gradual moves toward credit claim pre-positioning where legal/data capacity allows; high-quality collateral scarcity can constrain access in stress |
Key Themes and Comparative Observations
Breadth versus risk control
There is a consistent tension between broadening collateral to improve access to central bank liquidity and maintaining prudent risk management. Advanced economy central banks have moved toward increasingly broad collateral frameworks post-2008, while maintaining risk controls through granular, risk-based haircuts. The Eurosystem’s framework is the broadest in scope, accepting tens of thousands of marketable securities and credit claims from 19 jurisdictions, which required substantial harmonisation of eligibility and haircut rules.
Legal and data infrastructure
Pre-positioning of loan collateral is far more demanding than securities pre-positioning because of the need to ensure legal enforceability of security interests in diverse lending contracts. The BoE’s pre-positioning process explicitly focuses on confirming that the Bank can take legal ownership of loan assets in a stress scenario — a non-trivial requirement for complex structured pools. Gray et al. (2008) note that in many emerging markets, weak legal infrastructure for the assignment of credit claims remains a binding constraint on the adoption of broader collateral frameworks.
Operational readiness and stigma
Pre-positioning is most effective when paired with operational readiness exercises and a culture of routine engagement with central bank facilities. Federal Reserve analysis shows that pre-pledging collateral materially increases the probability of discount window use in stress, suggesting that reducing barriers to pre-positioning is itself a financial stability tool. This finding has gained particular salience following the 2023 banking turmoil, prompting the Fed to actively encourage broader pre-pledging as part of stigma reduction efforts.
Cross-border dimensions
Cross-border pre-positioning is an additional layer of complexity. The Eurosystem’s CCBM allows counterparties to mobilise foreign (intra-EU) assets as collateral with their national central bank, reducing fragmentation. Research by Garratt and Zimmerman (2022) examines the interaction between pre-positioning and cross-border financial intermediation, finding that collateral arrangements can influence the direction and volume of cross-border flows. For central banks in smaller or emerging economies — including GCC central banks — cross-border collateral arrangements and the ability to accept foreign assets are increasingly relevant given the international portfolio diversification of domestic banks.
Policy Implications
The cross-country evidence supports several policy conclusions:
- Formalise pre-positioning frameworks early. Waiting until stress to establish collateral eligibility and legal documentation is too late; the operational value of pre-positioning is precisely its ex ante nature.
- Invest in legal and data infrastructure. Legal enforceability and loan-level data capacity are prerequisites for broad collateral frameworks, particularly for credit claims.
- Use granular, risk-based haircuts. A single conservative haircut applied broadly can discourage pre-positioning; graduated, asset-specific haircuts better calibrate incentives.
- Conduct operational readiness exercises. Periodic testing of collateral mobilisation pipelines identifies bottlenecks before they matter.
- Reduce administrative and reputational barriers. Stigma and operational cost are significant deterrents to pre-pledging; policy design should lower both.
In Sum, Therefore
Pre-positioning of collateral represents an important but often underappreciated dimension of central bank preparedness. It converts the theoretical availability of central bank liquidity into practical, operational reality. Cross-country evidence shows that while the principle is universal, implementation varies widely — from the highly sophisticated, data-intensive loan pre-positioning frameworks of the BoE and Eurosystem to the more limited, securities-centred practices typical of many emerging markets. As financial systems grow more complex and stress episodes more frequent, investing in pre-positioning infrastructure — legal frameworks, data systems, operational procedures, and counterparty engagement — is increasingly central to robust liquidity management and financial stability.
References
Bank of England. (2014). Collateral management in central bank policy operations (Centre for Central Banking Studies Lecture Series). Bank of England. https://www.bankofengland.co.uk/-/media/boe/files/ccbs/resources/collateral-management-in-central-bank-policy-operations.pdfbankofengland
Bank of England. (2025a, October 22). Guide to pre-positioning loan collateral. Bank of England. https://www.bankofengland.co.uk/markets/eligible-collateral/guide-to-pre-positioning-loan-collateralbankofengland
Bank of England. (2025b, October 22). Guide to the management of loan collateral. Bank of England. https://www.bankofengland.co.uk/markets/eligible-collateral/guide-to-the-management-of-loan-collateralbankofengland
Bank for International Settlements. (2013). Central bank collateral frameworks and practices (Markets Committee Report No. 6). Bank for International Settlements. https://www.bis.org/publ/mktc06.pdfbis+1
Bank for International Settlements. (2016). Central bank operating frameworks and collateral markets (CGFS Papers No. 53). Bank for International Settlements. https://www.bis.org/publ/cgfs53.pdfbis
Bank Policy Institute. (2025, October 2). Unlocking the discount window. Bank Policy Institute. https://bpi.com/unlocking-the-discount-window/bpi
Central Banking. (2025, July 14). Collateral pre-positioning reported in half of jurisdictions. Central Banking. https://www.centralbanking.com/benchmarking/supervision/7973328/collateral-pre-positioning-reported-in-half-of-jurisdictionscentralbanking
European Central Bank. (2015). The Eurosystem collateral framework explained (Occasional Paper Series No. 189). European Central Bank. https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op189.en.pdfecb.europa
European Central Bank. (2026, January). Collateral management in Eurosystem credit operations. European Central Bank. https://www.ecb.europa.eu/pub/pdf/other/ecb.collateralmanagementeurosystemcreditoperations_202601.en.pdfecb.europa
Federal Reserve Board. (2025, August 28). Pre-pledged collateral and likelihood of discount window use (FEDS Notes). Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/econres/notes/feds-notes/pre-pledged-collateral-and-likelihood-of-discount-window-use-20250829.htmfederalreserve
Garratt, R., & Zimmerman, P. (2022). Pre-positioning and cross-border financial intermediation (Finance and Economics Discussion Series No. 2022-051). Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/econres/feds/files/2022051pap.pdffederalreserve
Gray, S., Chailloux, A., & McCaughrin, R. (2008). Central bank collateral frameworks: Principles and policies (IMF Working Paper No. 08/222). International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2008/wp08222.pdfeconpapers.repec+1
International Monetary Fund. (2024). A framework for systemwide liquidity analysis (IMF Working Paper No. 24/104). International Monetary Fund. https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024104-print-pdf.pdfimf
Jobst, A., & Ugazio, G. (2025). Intraday liquidity and cross-border collateral: Central bank perspectives in Asia and the Pacific. Asian Development Bank. https://www.adb.org/publications/intraday-liquidity-cross-border-collateraladb
Repullo, R. (2021). Theory of collateral for the lender of last resort. Review of Finance, 25(4), 973–1006. https://academic.oup.com/rof/article-abstract/25/4/973/6129115academic.oup
Stöcker, O. (2017). The collateral policy of central banks: An analysis focusing on the Eurosystem (ifo Beiträge zur Wirtschaftsforschung No. 72). ifo Institut. https://www.ifo.de/DocDL/ifo_Beitraege_z_Wifo_72.pdfifo
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