Such frameworks would allow market participants to be better prepared for shocks while allowing regulators and financial stability authorities to be more transparent about our expectations. Whether these frameworks address vulnerabilities from leverage, liquidity mismatch, or liquidity demands from margin calls, they can draw on the building blocks we have used to calibrate LDI resilience. Non-bank frameworks should capture both systemic and idiosyncratic risks. They should account for risks specific to individual participants. In calibration they should draw on the tails of distributions, which include system wide stresses, to calibrate resilience. The timeframes the calibrations are drawn from should consider the options and incentives for raising additional liquidity that are in place, and operational processes should be improved to ensure this additional liquidity can be supplied. Non-banks should not have any impediments to drawing down on their liquidity during stress. Given a suitable framework for addressing non-bank vulnerabilities, the question for financial  Page 7  stability authorities, regulators, and participants, is where should these frameworks be applied? Phrased another way, what activities and which markets are systemic? Some non-bank regulatory frameworks are already being built. UK authorities issued a discussion paper on Money Market Funds (MMFs) last year. [23] And ahead of a consultation paper to be released later this year, the FPC judged that MMFs should be able to withstand severe but plausible levels of investor outflows without amplifying stress and increasing risks to financial stability by holding more liquid assets.

[14] The guidance covers risk management, operational processes, and stress testing capabilities. The responsibility of ensuring the resilience of LDI funds lies not just with LDI managers. Pension schemes which invest in LDI products must also contribute to resilience. I’ve already spoken about pension schemes’ role in ensuring LDI managers can use their resilience as collateral by remaining invested in LDI funds as they do so. Beyond this, TPR has published guidance on the responsibilities of pension scheme trustees in ensuring LDI resilience. [15] Fred Berry, from TPR, will speak about this later this morning. Pension schemes should also have regard to the Government’s broader strategy[16] to ensure that defined benefit schemes (DB) schemes in the UK are sustainable, well-governed, and that scheme members achieve better outcomes. The government is in the process of encouraging DB scheme trustee boards to more actively detect and respond to risks. Given the potential risks to financial stability from DB pension schemes, this work is essential. How can this framework enhance resilience in non-banks more widely? Now I would like briefly to change tack and think about whether our approach to LDI funds’ resilience might also be relevant when considering the appropriate resilience of other non-banks whose activities can impact UK financial stability. As non-banks play a greater role in the financial system[17] as well as the real economy[18] we will  Page 6  continue to ask questions on the resilience of non-banks[19] so that they absorb rather than amplify shocks. What vulnerabilities have we identified?