This article describes the Bank of England’s 2022 gilt market intervention to support UK financial stability. It outlines the principles underpinning the design of this intervention and considers how these were applied in practice. The growing role of market-based finance has led to increased discussion of central bank use of temporary asset buy/sell tools in order to protect financial stability in a stress, building on their role as ‘lenders of last resort’. Amid severe dysfunction in the UK government bond market in September 2022, when distressed forced selling of gilts by liability-driven investment (LDI) funds ... (full story)

Traditionally, central banks have focused on the commercial banking system as the most common source of financial instability because most countries’ financial systems have been dominated by these banking entities for much of their history. Central banks have therefore typically aimed to mitigate financial stability risks by acting as lender of last resort (LOLR), to commercial banks primarily, following Bagehot. Since the global financial crisis (GFC) of 2008–09 there has been increasing discussion around the role of central banks in responding to liquidity shocks that threaten financial stability, and how it must ... (full story)