Selected Issues Papers

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

By Ruo Chen, Esti Kemp

July 13, 2023

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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 December 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