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The Bank of England has confirmed it intervened to stabilise the pensions market following the chancellor’s mini-budget as multiple firms which schemes were reliant on faced the prospect of being wound up within hours.
Responding to a letter from Treasury Select Committee chairman Mel Stride asking for greater clarity on why the Bank intervened at the end of September, Sir Jon Cunliffe, the Bank’s deputy governor for financial stability, said it launched an emergency £65bn bail-out gilt-buying programme to prevent a “self-reinforcing spiral”.
He said the speed and sheer scale of the rise in gilt yields – the cost of government borrowing – was unprecedented and put pressure on pensions funds.
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“The Bank was informed by a number of liability-driven investment (LDI) fund managers that, at the prevailing yields, multiple LDI funds were likely to fall into negative net asset value,” said Sir John.
“As a result, it was likely that these funds would have to begin the process of winding up the following morning.”
Soon after the Bank’s intervention, Sky News’ economics and data editor Ed Conway reported that the dramatic action had been taken in response to a “run dynamic” emerging in the British pensions system which could have resulted in the swift collapse of a swathe of institutions.
His original report said Bank staff worked through the night on Tuesday and into Wednesday morning last week to prepare the unprecedented package which would see it buying up a large number of targeted government bonds in an attempt to head-off that outcome.
It added that, according to those insiders, numerous funds were heading for collapse as soon as Wednesday afternoon.
Sir John reiterated that there had been a risk of severe disruption of core markets and “widespread financial instability”.
He added that the bank is now working with the UK’s pensions and financial regulators to ensure that…
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Source : skynews
