This Explanatory Note summarises the motivation for, and approach to, expanding the Bank’s financial stability toolkit. As a first step in this work, the Bank is developing the Contingent NBFI Repo Facility, which will allow eligible pension funds, insurance companies and liability-driven investment funds to borrow cash against gilts at times of severe gilt market dysfunction.
Explanatory note
Introduction
In September 2023, the Bank of England (the Bank) set out that work had begun to develop a new lending facility to address severe market dysfunction that threatens UK financial stability arising from shocks that temporarily increase non-bank financial institutions’ (NBFIs) demand for liquidity.footnote[1]
As a first step in this work, the Bank is developing the Contingent NBFI Repo Facility (CNRF) to supply cash to eligible pension funds, insurance companies and liability-driven investment funds (LDI funds) against UK sovereign debt (gilts) for a short lending term.
This Explanatory Note, which should be read alongside the accompanying Provisional Market Notice, provides additional detail on the background and design of the CNRF. The first section sets out the motivation for this work and the purpose of the new facility. The second section provides details on the rationale underpinning the expected design and parameters of the facility that are set out in the accompanying Provisional Market Notice.
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