Selected Issues Papers

Lessons from the United Kingdom’s Liability – Driven Investment (LDI) Crisis: United Kingdom

Author/Editor:

Ruo Chen ; Esti Kemp

Publication Date:

July 13, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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