Lessons from the United Kingdom’s Liability – Driven Investment (LDI) Crisis: United Kingdom
Electronic Access:
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Summary:
This paper seeks a deeper understanding of the factors that amplified the gilt market turmoil, which ultimately led the Bank of England (BoE) to undertake temporary gilt purchases on financial stability grounds in late September/early October 2022 to restore orderly market conditions and allow Liability Driven Investment (LDI) funds some time to build their capital positions. This paper identifies the key reasons for the success of the BoE’s intervention. This paper also discusses key gaps and policy issues related to monitoring financial stability risks in the broader NBFI sector for individual jurisdictions and international standard-setting bodies.
Series:
Selected Issues Paper No. 2023/049
Subject:
Asset and liability management Expenditure Financial institutions Financial sector policy and analysis Financial sector risk Financial sector stability International organization Liquidity Monetary policy Nonbank financial institutions Pension spending
Frequency:
Regular
English
Publication Date:
July 13, 2023
ISBN/ISSN:
9798400248108/2958-7875
Stock No:
SIPEA2023049
Format:
Paper
Pages:
17
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