The Bank of England has announced a controversial decision to keep the identities of any pension funds, insurers, or hedge funds bailed out under its new financial stability tool, the Contingent NBFI Repo Facility (CNRF), strictly confidential.
The decision, claimed to be aimed at averting a broader financial crisis, has sparked a strong backlash from critics who insist that taxpayers have a right to transparency when their money is being used.
Former Prime Minister Liz Truss was among those voicing concerns, branding the policy “extraordinary.”
“Neither elected officials nor taxpayers would know who has to be bailed out with public money. Have they learnt nothing from 2008?” she said. “Accountability needs to be returned to our financial system urgently.”
The CNRF, set to launch in early 2025, will allow the Bank of England to provide cash to shadow banking entities, such as liability-driven investment (LDI) funds and hedge funds, during times of extreme financial stress. The facility is intended to safeguard the gilt market, a cornerstone of the UK financial system.
Public Funds, Private Secrets
Deputy Governor Dave Ramsden defended the decision, claiming that revealing the names of bailed-out institutions could create a stigma that deters firms from using the facility, exacerbating financial instability.
“It’s incredibly important to the bank that we avoid this: the CNRF, like all our facilities, is there so that it can be – and should be – used once it has been activated,” Ramsden said. “To further mitigate the risk of stigma, the bank intends to publish the number of firms that are signed up to the CNRF, but we would not reveal any names; and in the event that we activate the CNRF, we would only disclose borrowing at an aggregate level.”
Critics, however, argue that this lack of transparency undermines public trust and were quick to point out the potential for rumours and market instability.
“This won’t survive its first test,” one said. “Markets will know in a time of financial crisis someone is getting bailed out, and the rumours will fly. So instead of one bank being at risk, they all will be tarred until word is leaked on who it really is. How can you possibly keep this secret?”
Lessons from 2008 Forgotten?
The Bank’s decision draws parallels with the financial crisis of 2008 under the last Labour Government, when a lack of transparency and accountability in bailouts eroded public confidence in the financial system. Ramsden, however, insists that keeping identities confidential is a lesson learned from that period, citing stigma as a significant factor that deterred institutions from seeking necessary liquidity support.
But many remain unconvinced. Critics argue that withholding the names of institutions using taxpayer-backed lifelines sets a dangerous precedent and leaves the public in the dark about where their money is going.
Changing Risks in the Financial Landscape
The CNRF represents a response to the evolving nature of financial risks. Since the 2008 financial crash, UK businesses have increasingly turned to market-based lending rather than banks, with hedge funds now playing a significant role in the gilt market. Hedge funds’ share of gilt trading volumes has grown from 16% in 2018 to 28%, adding new layers of complexity and risk to the financial system.
“Vulnerabilities like hedge fund leverage and concentration are a specific example of the vulnerabilities that could lead to system-wide risks,” Ramsden said, highlighting the importance of monitoring these developments closely.
A Policy Under Fire
The CNRF’s potential scope has also drawn scrutiny. Ramsden indicated that the tool could be extended beyond pension funds and LDIs to include insurance companies and even hedge funds, raising further questions about the oversight and accountability of this sweeping measure.
For now, the Bank of England has defended its approach as necessary to maintain financial stability. But with public trust and accountability at stake, this controversial policy is sure to face significant scrutiny in the months ahead.
A Conservative Party spokesperson said : “The British people deserve to know where their money is going. This level of secrecy is unacceptable, and it’s high time we demanded better from those entrusted with safeguarding our financial system.”
Photo of the Bank of England in London by Alex Guibord and licensed under the Creative Commons Attribution 2.0 Generic license.
