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Bank of England calls for “urgent” global action after near-collapse of UK pension funds

LONDON, February 3: Governor of the Bank of England Andrew Bailey leaves after a press conference at the Bank of England on February 3, 2022 in London, England.

Dan Kitwood | Getty Images News | Getty Images

LONDON – The Bank of England on Tuesday called for “urgent international action”[ads1]; from regulators at non-bank financial institutions after it was forced to bail out British pension funds in September.

A number of pension funds were hours from collapse when the central bank intervened in the long-dated bond market. It came after a series of massive moves in interest rates on UK government debt exposed vulnerabilities in liability-driven investment (LDI) funds, which are held by UK pension schemes.

In its latest financial stability report published on Tuesday, the bank said if it had not acted, “the stress would have significantly affected the ability of households and businesses to access credit.”

Its temporary emergency bond purchase program gave the LDI funds time to strengthen their liquidity positions and ensure the country’s financial stability.

Bank of England calls for “urgent” global action after near-collapse of UK pension funds

The bank stressed the need for cross-jurisdictional regulators to strengthen the resilience of the sector, saying “urgent international action is needed to reduce risk in non-bank finance.”

The central bank said it will launch an “exploratory scenario exercise” focusing on non-bank financial institutions to better understand and mitigate the risks associated with it.

“The expertise of this sector needs to be improved in a number of ways to make it more resilient,” the bank concluded.

“This includes the need for regulatory action to ensure LDI funds retain their higher levels of resilience. Some steps have already been taken and further work will be done next year.”

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