BoE to stress test non-banks for first time after pensions turmoil

Investment funds and other non-bank financial institutions face their first "stress test" in 2023 to apply lessons from the near-meltdown in Britain's pension fund sector, the Bank of England (BoE) said in December. The BoE had to step in from September to buy £19.3bn of...

Investment funds and other non-bank financial institutions face their first “stress test” in 2023 to apply lessons from the near-meltdown in Britain’s pension fund sector, the Bank of England (BoE) said in December.

The BoE had to step in from September to buy £19.3bn of government bonds to stabilise markets after turmoil caused by the fiscal plans of Liz Truss’s short-lived government. Liability-driven investment (LDI) funds, used by pension funds to ensure their long-term payouts, struggled to meet collateral calls as bond prices tumbled.

The BoE’s Financial Policy Committee (FPC), which monitors the financial system for risks, recently said that the LDI crisis showed the need to test how non-bank financial institutions (NBFI) cope with stresses. “The Bank will run, for the first time, an exploratory scenario exercise focused on NBFI risks, to inform understanding of these risks and future policy approaches,” the FPC said in its half-yearly Financial Stability Report.

Further details will be set out in the first half of 2023.