Author : Ms. Ruo Chen
Publisher : International Monetary Fund
ISBN 13 :
Total Pages : 25 pages
Book Rating : 4.76/5 ( download)
Book Synopsis Putting Out the NBFIRE: Lessons from the UK's Liability-Driven Investment (LDI) Crisis by : Ms. Ruo Chen
Download or read book Putting Out the NBFIRE: Lessons from the UK's Liability-Driven Investment (LDI) Crisis written by Ms. Ruo Chen and published by International Monetary Fund. This book was released on 2023-09-29 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: Liability Driven Investment (LDI) funds were at the center of the severe stress that emerged in the UK gilt market in the aftermath of the September 2022 UK "mini-budget". The episode, which came on the heels of the “Dash for Cash” and “Archegos” stress episodes in the previous two years, highlights underlying vulnerabilities in the large and diverse non-bank financial institution (NBFI) sector. 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 enable LDI funds to build their capital positions. With the gilt market stress and the BoE’s purchases now fully unwound, this paper identifies the key reasons for the success of the BoE’s intervention. Then, drawing also on findings of the 2022 UK Financial Sector Assessment Program (FSAP), the paper discusses key gaps and policy issues related to the monitoring of financial stability risks in the broader NBFI sector for both individual jurisdictions and international standard-setting bodies.