Bank of England increases support for pension funds

The Bank of England has announcing fresh measures to keep the UK’s financial markets functioning, following the turmoil which hit the pensions industry after last month’s mini-budget.

In a statement this morning, the Bank says it will take three ‘additional measures’ to broaden its support, as it prepares to end its emergency backstop support on Friday.

In the final week of operations, the Bank is announcing additional measures to support an orderly end of its purchase scheme.

• First, the Bank will stand ready to increase the size of its daily auctions to ensure there is sufficient capacity for gilt purchases ahead of Friday 14 October. To date, the Bank has carried out 8 daily auctions, offering to buy up to £40bn, and has made around £5bn of bond purchases. The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5bn in each auction. The maximum auction size will be confirmed each morning at 9am and will be set at up to £10bn in today’s operation. The Bank’s existing reserve pricing mechanism will remain in operation during this period.
• Second, the Bank will launch a Temporary Expanded Collateral Repo Facility (TECRF). This facility will enable banks to help to ease liquidity pressures facing their client LDI funds through liquidity insurance operations, which will run beyond the end of this week. Under these operations, the Bank will accept collateral eligible under the Sterling Monetary Framework (SMF), including index linked gilts, and also a wider range of collateral than normally eligible under the SMF, such as corporate bond collateral.
• Third, the Bank will also stand ready through its regular Indexed Long Term Repo operations each Tuesday to support further easing of liquidity pressures facing LDI funds. This permanent facility will provide additional liquidity to banks against SMF eligible collateral, including index linked gilts, and so support their lending to LDI counterparties. Liquidity is also available through the Bank’s new permanent Short Term Repo facility, launched last week, which offers an unlimited quantity of reserves at Bank Rate each Thursday.