the building blocks of resilience - speech by sarah breeden given at westminster business forum policy conference published on 16 june 2023 following the financial policy committee's recommendations, sarah breeden sets out the steps being taken to build resilience within liability driven investment funds. she then looks at other vulnerabilities within non - bank financial institutions and how the ldi framework could be applied to build resilience within these firms. speech pension funds have an enormous responsibility in ensuring that pension obligations are honoured while also playing a vital role in facilitating the flow of savings into investment, including funding productive finance [ 1 ] and climate resilience. [ 2 ] and they are key players in the gilt market which is vital to the functioning of sterling financial markets more broadly. on all these grounds, pension fund resilience is a key financial stability issue, which will be the topic of my speech today. i suspect i don ’ t need to remind this audience of what happened last autumn. you will all remember how poorly managed leverage [ 3 ] at some liability - driven investment ( ldi ) funds [ 4 ] amplified a sudden repricing of assets following the government ’ s growth plan, creating a self - reinforcing price spiral in the long - end of the gilt market. the bank of england ( bank ) then undertook a targeted intervention in the gilt market in order to deliver our financial stability objective, buying time for ldi funds to build their resilience. even that brief reminder may have been enough to send hearts racing. i won ’ t use any more of this speech today to look backwards. for those that do want to dig deeper, i ’ d like to briefly plug a speech by my colleague jon hall, which will cover the risks of leverage including in ldis next week. what i ’ d like to do instead is explain what the financial policy committee ( fpc ) is doing to build steady state resilience in ldi funds and what needs to be done by pension funds to ensure risks to financial stability are reduced. then i ’ ll look forwards to how the fpc might use this framework for steady state resilience in ldi funds to build resilience throughout the system of market - based finance [ 6 ] in the future. how are we building resilience in ldi funds? as this audience will know, the fpc does not have specific regulatory responsibility for pension schemes or ldi funds. however, the f

under which they operate. and in the midst of a crisis situation there is no room to negotiate legal boundaries. that said, we also recognise that the most effective response to a cross - border crisis would desirably involve very close cooperation and coordination between the home and host authorities. to this end the rbnz has been active in pursuing closer cooperation with apra. we have had for some time memoranda of understanding with apra and the financial services authority in the uk that allow for the sharing of supervisory information. however, a number of other cooperative measures have been undertaken recently : • we have initiated a secondment strategy of senior staff members between apra and the bank. we believe that we can learn from one another. • we have established a terms of engagement with apra so that we can dovetail our basel ii implementation initiatives. • we are assessing all of our requirements of banks under the basel core principles ( bcp ) so as to best ensure we have a single set of regulatory ` rules'where possible and sensible. • we have agreed to share visits to australian - owned banks on either side of the tasman with apra staff. the rbnz has agreed with apra a terms of engagement for basel ii implementation. the terms of engagement sets out the rbnz's and apra's intent to implement basel ii in a such a way that each supervisor's right to set its own minimum levels of capital is maintained, while at the same time seeking to reduce compliance costs where possible. it also requires that the rbnz and apra will conduct supervisory reviews of banks operating in both jurisdictions in a way that makes use of each supervisor's comparative advantage. this will involve joint sharing of information on, and recognition of, supervisory tools used and reviews undertaken. in february, new zealand's minister of finance and the australian treasurer announced the formation of a trans - tasman council on banking supervision to consist of the respective reserve banks and treasuries, and apra. this council will be represented at the highest level within the member institutions. its main role will be the monitoring and coordinating of trans - tasman home - host regulatory issues. the council is not based on statute. rather its role is that of monitoring and advice, with reporting duties to the relevant ministers. a key goal for the council is to promote the maximum coordination, cooperation and harmonisation of trans - tasman bank regulation where sensible, so as to best minimise compliance costs. preliminary