The Bank of England will stop accepting bonds linked to thermal coal as collateral for its key lending facilities [1, 2].
This policy shift signals a move to insulate the UK's central financial system from the long-term risks associated with fossil fuels. By restricting what commercial banks can use to secure loans, the central bank effectively pressures the wider financial sector to divest from carbon-heavy assets.
The announcement came on July 19, 2026, as part of a broader effort to tighten the collateral framework [1]. The bank aims to align its internal policies with the United Kingdom's national transition toward a low-carbon economy [1, 2].
"We are committed to ensuring that the Bank of England’s collateral framework reflects the transition to a low‑carbon economy," Governor Andrew Bailey said [1].
Central bank officials said the move is a response to the evolving nature of the energy market. A Bank of England spokesperson said that thermal coal presents increasing long-term financial risks and that the updated rules will reduce exposure to those assets [2].
Industry observers suggest the move will have a ripple effect across the City of London. James Smith, Director of Climate Action Network UK, said the move will force commercial banks to rethink holding assets linked to the fossil fuel sector [1].
Under the new rules, the bank will no longer accept these specific bonds to back the loans it provides to commercial banks. This change removes a primary incentive for banks to hold thermal coal bonds, as they can no longer be easily converted into liquidity through the central bank's lending windows [1, 2].
“"Thermal coal presents increasing long‑term financial risks," said a Bank of England spokesperson.”
This decision transforms environmental risk into a liquidity risk for commercial banks. When a central bank refuses certain assets as collateral, those assets become 'stranded' or less valuable because they cannot be used to secure emergency funding. This creates a powerful financial incentive for private lenders to shift their portfolios away from coal to maintain flexible access to central bank liquidity.
