A liquidity framework built for faster stress
The PRA's March 2026 consultation on modernising the liquidity policy framework is a response to a simple problem: liquidity shocks now travel faster than the framework was originally designed for. In the Bank of England's own telling, digital banking, faster payments and faster communication mean confidence can be lost and outflows can gather pace in ways the post-crisis calibration did not fully anticipate.
That matters because the PRA is not proposing a wholesale rewrite of Pillar 1 liquidity rules. Instead, CP5/26 is aimed at targeted Pillar 2 changes through the Internal Liquidity Adequacy Assessment, supervisory expectations and firms' own monetisation readiness. In practice, that means the burden shifts towards how firms evidence judgment, operational capability and escalation discipline in the first days of a stress.
What the PRA is actually proposing
The consultation groups the package into five areas. The first is a stronger requirement for firms to assess the composition of liquidity resources and monetisation risk, including sudden and severe outflow scenarios in the initial days of stress. The second is removing the exemption that currently keeps Level 1 assets outside certain monetisation testing expectations. The third and fourth are about central bank facilities and pre-positioned collateral, making operational readiness to use the Bank's facilities a more explicit part of liquidity risk management.
That combination is important. The message from the PRA is not simply “hold more liquid assets”. It is “understand which liquid assets can really be turned into cash, how quickly, through which channels, and with what frictions when the pressure is highest”. That is a more demanding operational question than many firms have historically treated it as.
Why this matters for treasury, risk and reporting teams
The consultation is also tied to the Bank of England's move towards a demand-driven, repo-led supply of reserves. As reserves in the system continue to normalise, firms will need to think more actively about the composition of their HQLA, the role of central bank facilities in business-as-usual liquidity management, and the collateral they can mobilise at speed. Borrowing from the Bank is being framed more clearly as a normal part of prudent liquidity management, not a last-minute emergency measure.
For treasury, risk and finance teams, that means the centre of gravity moves from stock to usability. Pre-positioned collateral, settlement mechanics, internal approvals, legal documentation, operational playbooks and management information become part of the prudential answer, not just supporting detail. Firms that cannot show that those elements work together will struggle to persuade supervisors that their liquidity resources are truly available when needed.
There is also a reporting angle that is easy to miss on a first read. The PRA's proposal to remove the monetisation actions section of PRA110 does not lower the bar. It shifts the emphasis away from a narrow template field and towards a broader expectation that firms can evidence monetisation risk, severe early-day outflows and central bank readiness through internal stress reporting, ILAAP materials and board-level management information.
What banks should be doing now
In our reading, the immediate management task is to identify where the firm's current liquidity framework still assumes orderly monetisation. That includes private-market sale assumptions, transferability across entities and currencies, readiness to use central bank facilities, and whether governance escalation can operate at the speed a digital run would require. The right question is no longer “do we hold enough liquid assets on paper?” but “how much can we turn into usable liquidity in the first 24 to 72 hours?”
Firms should also trace the full information chain now: where liquidity resource composition is reported, where monetisation assumptions sit, how pre-positioned collateral is tracked, what management sees in stress, and how quickly treasury, risk and finance can produce a coherent view under pressure. If those answers are spread across disconnected reporting packs, the operational weakness will become visible in supervision very quickly.
The implementation section matters too. The PRA proposes a phased approach, with some elements - including the monetisation section of PRA110 and the policy stance on central bank facilities and pre-positioned collateral - changing immediately when final rules are made, and the remaining package following 12 months later. That gives firms time, but not much spare time. Institutions that use the consultation window to tighten data, playbooks and reporting will be in a stronger position than those treating this as a narrow policy update.