LONDON, FEBRUARY 3: Bank of England Governor Andrew Bailey leaves after a press conference at the Bank of England on February 3, 2022 in London, England.
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A number of retirement funds had hours of collapse when Central bank intervention in the long-term bond market. It came after a series of massive moves in interest rates on UK government debt exposed weaknesses in liability-driven investment (LDI) funds, which are held by UK pension systems.
In its latest Financial Stability Report published on Tuesday, the bank said that had it not acted, “the stress would have greatly affected the ability of households and businesses to access credit.”
that it Temporary Emergency Bond Purchase Program It allowed time for LDI funds to consolidate their liquidity positions and ensure the country’s financial stability.
The bank stressed the need for regulators across jurisdictions to strengthen the resilience of the sector, saying “urgent international action is needed to reduce risks in non-bank financing.”
The central bank said it would launch an “exploratory scenario” focusing on non-bank financial institutions in order to better understand and mitigate the risks associated with them.
The bank concluded that “the resilience of this sector needs to be improved in several ways to make it more robust.”
“This includes the need for regulatory action to ensure LDI funds maintain their high levels of flexibility. Some steps have already been taken, and more work will be done next year.”
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