Bank of England to post collateral in OTC derivatives trades

BoE thought to be the first major central bank to change policy on collateralisation as it seeks to reduce dealer funding charges

The Bank of England (BoE) will start posting collateral to its counterparties in over-the-counter derivatives trades – an attempt to reduce costs for the central bank, and a policy U-turn that took dealers by surprise when it was announced yesterday afternoon.

Sovereign and supranational derivatives users typically do not post collateral, which creates a funding obligation for dealers. While the Portuguese and Irish debt offices have switched to two-way agreements in the past two years, the BoE