Bank of England launches repo facility for pension funds

The bank is now accepting applications for the Contingent Non-Bank Financial Institution Repo Facility (CNRF). 

The facility “will only be activated during episodes of severe gilt market dysfunction”, the bank said in a statement. 

It will exchange cash for gilts in deals with insurance companies, pension schemes and LDI funds in an effort to maintain market stability. Any trading will be at the bank’s discretion, and participants must have at least £2bn in gilts to qualify for the facility. 

Those taking in part in the CNRF will be charged £8,000 a year to cover the bank’s operating costs. 

It follows a scenario analysis published by the Bank of England last year that found that, while LDI funds’ resilience had improved since the 2022 gilts crisis, a similar event could still cause pension schemes to be forced to sell assets. 

“The introduction of this innovative facility by the Bank of England will be a helpful addition for pension schemes and other non-bank financial institutions that play an increasingly important role in the financial system.”

Wyn Francis, Brightwell

Wyn Francis, chief investment officer at Brightwell, which runs the BT Pension Scheme, said: “In times of market stress, having the right tools in place that are easily accessible and can be activated at short notice is imperative for the industry. 

“The introduction of this innovative facility by the Bank of England will be a helpful addition for pension schemes and other non-bank financial institutions that play an increasingly important role in the financial system. 

“Looking ahead, the Bank of England could consider broadening the scope of the tool to other core markets, including UK credit.”

The 2022 gilts market crash caused a drop of more than £10bn in the BT Pension Scheme’s assets. 

Vicky Saporta, the Bank of England’s executive director for markets, described the opening of the CNRF as “a significant step forward” in preparations for future 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,” Saporta said. 

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