Bank of England calls for tougher pension scheme rules after crisis

theguardian.com:

The Bank of England has called for tougher rules governing pension schemes and major lenders outside the banking mainstream as it seeks to restore confidence in the wider financial system.

British banks remain resilient to further financial shocks, the Bank said but there was greater urgency to make non-bank finance companies that lend trillions of dollars globally more resilient.

In its quarterly report on the health of the UK’s financial system, the central bank’s financial policy committee said pension funds hit by last autumn’s crisis in liability driven investments, when a sharp fall in the value of government bonds triggered a fire sale of assets, would need to increase their reserves to prevent it happening again.

It called for funds using LDIs to face new stress tests to stop a repeat of the crisis that followed Kwasi Kwarteng’s poorly received mini-budget in September.

The FPC added that it was monitoring the behaviour of investors after a flight to safety earlier this month on the back of the collapse of the US bank Silicon Valley Bank and the rescue of the Swiss lender Credit Suisse.

Its report said the global financial system was still adjusting to higher interest rates in the US, euro area and the UK, which could lead to difficulties for some lenders.

Assessing the economic situation in the UK, the FPC concluded the pressure on households and companies had eased since its last review in December. Reduced gas prices and lower than previously estimated unemployment meant they were more likely to be able to cope with higher debt payments. Banks were also in a strong position to cope with domestic and overseas-generated shocks.

“Major banks have large liquidity asset buffers, around two-thirds of which are currently