Bank of England outlines contingent liquidity tool to preserve NBFI market resilience

Published: 13 March 2024


On 12 March, the Bank of England’s head of the Future Balance Sheet Unit, Nick Butt, delivered a speech outlining the importance of non-bank financial institutions (NBFIs) and announced plans to develop a lending tool to serve as a liquidity backstop for NBFIs.

Key takeaways:

  • Developing a Contingent Liquidity Tool: Central to the Bank of England’s strategy involves creating a lending tool designed to provide liquidity to NBFIs during market stress by using gilts as collateral. This tool is meant to be activated in times of crisis, rather than being available as a standing facility.
  • Focusing on the Gilt Market: Given its systemic importance, the gilt market is the initial focus, aiming to safeguard government financing and ensure the stability of secured lending and inter-market operations.
  • Expanding Toolkit Responsibly: While initially targeting insurance companies, pension funds, and liability-driven investment funds due to their significant involvement in past liquidity crises, there is an openness to eventually broadening the tool's applicability to a wider range of NBFIs, aligning with overall efforts to boost sector resilience.

The Bank of England is actively seeking input from market participants to refine the tool's design and ensure it effectively addresses the needs of the financial system.

For further information please contact Nicholas Smith ([email protected])