Selected Issues Papers

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

By Ruo Chen, Esti Kemp

July 13, 2023

Download PDF Order a Print Copy
Order a Print Copy

Preview Citation

Format: Chicago

Ruo Chen, and Esti Kemp. Lessons from the United Kingdom’s Liability – Driven Investment (LDI) Crisis: United Kingdom, (USA: International Monetary Fund, 2023) accessed November 21, 2024

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.

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

Keywords: Bank of England financial stability intervention, BoE intervention, Central bank liquidity backstops, Defined benefit pension funds, Esti kemp, Financial sector risk, Financial sector stability, Financial stability, Gilt market turmoil, Global, LDI fund, LDI strategy, Liability driven investment, Liquidity, Liquidity management, Market intelligence, NBFI sector, NBFI surveillance, NBFIs, Nonbank financial institutions, Pension spending, United Kingdom's liability

Publication Details

  • Pages:

    17

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Selected Issues Paper No. 2023/049

  • Stock No:

    SIPEA2023049

  • ISBN:

    9798400248108

  • ISSN:

    2958-7875

You May Also Be Interested In...

India: Review and Evaluation of the Reserve Bank of India’s Stress Test Model Framework

November 20, 2024

Guidance Note On The Financing Assurances And Sovereign Arrears Policies And The Fund's Role In Debt Restructurings

November 18, 2024

Quarterly Projection Model for the Bank of Ghana: Extensions and Applications

November 15, 2024

Growth Convergence and Public Finances of India and its States

November 15, 2024