In a move that seems more like a confession than a solution, the Bank of England has unveiled its new ‘Contingent Non-Bank Financial Institution Repurchase Agreement Facility’ (CNRF).
Billed as a safeguard for financial stability, this facility is, in reality, a belated attempt to paper over the cracks of a derivatives market it helped turn into a ticking time bomb.
Deputy Governor Sir David Ramsden recently gave a speech introducing the CNRF, but the real story lies in the Bank’s failures. According to an in-depth analysis by Lyddon Consulting, this initiative is not a sign of progress—it’s an admission of guilt.
A Crisis of the Bank’s Making
The derivatives market, once a tightly regulated domain, has morphed into what can only be described as a global casino. Liability-Driven Investments (LDIs)—the financial instruments at the heart of the UK pension funds’ near-collapse in 2022—epitomise this reckless transformation. These pension funds took staggering gambles on UK interest rates, and when their bets failed spectacularly, they came perilously close to insolvency.
The Bank and its global peers are directly culpable. Their post-Global Financial Crisis (GFC) reforms turned derivatives trading into a free-for-all, allowing virtually anyone dressed up as a “Non-Bank Financial Institution” to enter the fray. Pension funds, hedge funds, and other players were let loose with minimal oversight, spinning financial roulette wheels that threatened to take the entire system down with them.
The Mini-Budget Scapegoat
When the gilt market imploded in September 2022, the Bank and other vested interests wasted no time pinning the blame on Liz Truss and Kwasi Kwarteng’s Mini-Budget. But as Lyddon Consulting points out, this narrative conveniently ignored the Bank’s role in enabling the crisis. It was the Bank’s loose monetary policies, its slow response to tightening, and a series of regulatory missteps that laid the groundwork for disaster.
The CNRF is a quiet admission that the Bank’s own actions—not the Mini-Budget—created the conditions for the gilt meltdown. Yet, for two years, the underlying issues have been allowed to fester, unchecked and unresolved.
A Global Warning Ignored
The signs were there long before September 2022. In 2021, the collapse of Archegos Capital Management offered a grim preview of what was to come. Archegos, which was little more than a leveraged portfolio masquerading as a hedge fund, imploded spectacularly, wiping out billions. Its reckless use of derivatives mirrored the same tactics employed by UK pension funds. The Bank of England, however, failed to take heed.
Fast-forward to 2022, and the same flawed practices resurfaced in the LDIs debacle. Pension funds, emboldened by the Bank’s lax regulatory framework, over-leveraged themselves to catastrophic effect. The introduction of the CNRF suggests the Bank is finally acknowledging the scale of the problem, but as Lyddon Consulting notes, it’s too little, too late.
Deflecting Accountability
The Bank’s recent communications have sought to deflect responsibility by citing unrelated examples from abroad. Silicon Valley Bank’s 2023 collapse and Credit Suisse’s downfall are repeatedly referenced. However, these cases differ significantly from the UK’s LDI crisis. Credit Suisse’s demise, for instance, was heavily tied to its exposure to Archegos—an inconvenient truth the Bank seems eager to overlook.
By focusing on foreign incidents, the Bank is attempting to muddy the waters. The CNRF is not a response to problems originating overseas; it’s a sticking plaster for issues created by the Bank’s own policies.
A Fragile Future
The introduction of the CNRF is an acknowledgment that the financial system remains precarious. But it’s no panacea. The facility may offer a short-term buffer, but it doesn’t address the root causes of the problem. The derivatives market remains a powder keg, and if it explodes again, the Bank won’t have the Mini-Budget to scapegoat.
As Lyddon Consulting succinctly puts it, the Bank’s legacy of financial mismanagement continues to cast a long shadow over Britain’s economic future. For those seeking a deeper understanding of the issues at play, you can read Lyddon Consulting’s full analysis here or access the comprehensive report here.
Additionally, the Conservative Post’s coverage offers further insights into the Bank’s questionable track record here.
Conclusion
The CNRF may provide a temporary fix, but the systemic risks created by the Bank’s own policies remain unresolved. The public deserves transparency, accountability, and meaningful reform—not half-hearted measures that paper over the cracks. As the Bank grapples with the consequences of its epic blunders, one thing is clear: Britain’s economic stability hangs in the balance.
Bob Lyddon is an Independent financial analyst and a specialist consultant in international banking. Follow Bob Lyddon on Twitter here or find out more about Lyddon Consulting here.
“Their post-Global Financial Crisis (GFC) reforms turned derivatives trading into a free-for-all”
Why are you arguing for more nanny state socialist red tape regulations?
True fee market capitalist patriots insist that there should be a bonfire of such regulations so that a true free-for-all free market exists and all entrepreneurs are able to participate thereby ensuring competition, maximum efficiency, and maximum profits for all.
Your arguments are from the WEF Soros dogma of preserving the power and wealth of the elites and should be rightly spurned.