5 % 3 % however, a hypothetical broad - based, always - on facility of this kind, available at terms no worse than those available to banks could remove the incentive for some types of nbfi to build stronger resilience, undermining the role of banks as liquidity providers in normal times, and putting public resources unnecessarily at risk potentially breaching the backstop goal ( b ). going to the other extreme and placing most weight on that goal might suggest having a facility that is triggered only in instances of clear dysfunction, after bank intermediation capacity is clearly exhausted. such a tool might be made available only to nbfis judged to have appropriate levels of self insurance, supplemented perhaps with a pricing and / or haircut schedule that varies according to the ex ante resilience of the nbfi and / or the intensity of attempts made to improve that resilience. current levels of resilience range widely across nbfis. in the uk, insurance companies are at the stronger end of the spectrum. 15 ldi funds are also now required to maintain strong levels of liquidity resilience consistent with their systemic role, under standards put in place following the autumn 2022 crisis. 16 these ldi standards have significantly bolstered the resilience of the wider defined benefit pension scheme sector and there is 14 the table captures only sales by individual nbfis that were net sellers over the relevant periods ( ie it does not include any gross sales by firms that were net buyers of gilts ) ; the table entries show the proportion of each sector's net sales as a proportion of overall nbfi net sales. 15 they are subject to prudential regulation covering liquidity risk ; the pra these regulations, and is considering how both regulation and supervision in this area might be further strengthened : see liquidity risk management for insurers | bank of england 16 bank staff paper : ldi minimum resilience - recommendation and explainer | bank of england bank of england a broader programme of work underway, in response to recommendations from the fpc and the work and pensions select committee, to ensure that the sector is able to take into account financial stability considerations on an enduring basis and be resilient to plausible future stresses. however, other firms captured by the data in figure 4 are subject to less demanding resilience standards. no final decisions have yet been made on these design choices but it is unlikely we will end up

of england possible solutions. 5 but words are not enough lasting improvement in financial stability will only be delivered through concrete reform. today i want to talk about our plans to do just that at the bank of england, through an ambitious programme to build a new generation of lending tools to help underpin financial stability during periods of exceptional liquidity stress, channelling liquidity directly to resilient nbfis when capacity constraints prevent banks from lending in sufficient size. i will focus on three specific issues : 1. why we urgently need the capacity to lend to nbfis in a stress and what the ultimate objectives of such facilities should be ; 2. how we want to design the facility so it is effective in restoring stability, while incentivising nbfis to act now to improve their own risk management ; and 3. how we can make a practical reality of the new tool, working with nbfis and their regulators to tackle the many operational challenges involved starting with uk insurance companies and pension funds, and their newly - resilient ldi funds. need tackling financial instability caused by core market dysfunction the driver for building these new tools comes from our statutory responsibility to protect and enhance the stability of the entire uk financial system, encompassing banks, nonbanks and markets. the capacity of banks to threaten financial stability through self - reinforcing runs on short - term deposits has long been understood. 6 there were vivid reminders of that risk this spring in the us and switzerland following the failure of silicon valley bank and credit suisse. but the way in which nbfis pose systemic liquidity risks is less immediately obvious. in particular, their funding models may be more opaque, wholesale - focused or longer maturity than traditional bank sight deposits. but the reality is that many nbfis are still exposed to liquidity mismatch, for example through the use of leverage or other short 5 see for instance : non - bank financial intermediation - financial stability board ; enhancing liquidity of the u. s. treasury market under stress | brookings ; group of 30 : : publication details ; market dysfunction and central bank tools ; reports of the advisory scientific committee - no 13 / january 2023 ; hauser | bank of england ; and preventing and responding to dysfunction in core markets dallasfed. org. bank runs, deposit insurance, and liquidity. bank of england term funding structures designed to increase exposure and scale up returns ( but therefore also potential losses ). in executing these strategies,