The Bank of England opened a Contingent Non-Bank Financial Institution Repo Facility for applications on Tuesday, which it can activate in case of gilt market upheaval.  

The new facility will only be activated during episodes of “severe gilt market dysfunction”, the Bank said, and will lend to participating pension schemes, liability-driven investment funds and insurers. The initial design for this was outlined in July 2024. 

BoE executive director for markets Vicky Saporta said: “Opening for CNRF applications marks a significant step forward in our efforts to deal with future episodes of gilt market dysfunction. Having the ability to lend to eligible non-bank financial institutions in times of severe market stress means we are better equipped to protect financial stability for the benefit of households and businesses throughout the UK.” 

The Bank had sought views from firms and industry bodies on this new type of facility. 

Zoe Alexander, the Pensions and Lifetime Savings Association’s director of policy and advocacy, welcomed the facility, saying: “It will provide greater reassurance to defined benefit pension schemes, and their members, that they will be able to obtain liquidity during periods of market dysfunction.”  

The Bank said that non-bank financial institutions have grown in importance in terms of their impact on UK financial stability, adding: “This new tool will support financial stability in times of severe market stress, by providing backstop liquidity to participating insurance companies, pension funds and liability driven investment funds, reducing their need to sell assets.” 

To be eligible for the lending facility, firms need to hold more than £2bn gilts alongside meeting other criteria, and there is an annual fee of £8,000 to cover the cost of running the facility.  

The Bank’s new tool is the result of severe gilt market turbulence in autumn 2022, which only ended when the central bank provided emergency liquidity. 
 

   

Should pension funds need to rely on BoE support?