Gilt-repo fragility: the crisis backstop excludes the market's marginal player

The Bank of England's Contingent NBFI Repo Facility (opened to applications January 2025) covers only insurers, pension funds and LDI funds holding £2bn+ of gilts. Hedge funds (now ~30% of gilt trading volumes and dominant in cash-futures basis trades financed by repo) are excluded, and minimum repo haircuts floated in the Bank's 2025 gilt-repo resilience discussion paper (feedback published 2026) have not been mandated. There is no regularly published dashboard of NBFI gilt leverage, leaving Parliament and market participants reliant on ad hoc FPC commentary.

The 2022 LDI spiral cost the Bank a £19bn emergency intervention and nearly toppled pension funds. The same dynamic (leveraged forced sellers, no backstop) now sits with hedge funds, in a market that must absorb record issuance plus £70bn/year of QT supply.

Phase-2 CNRF extension to broader NBFIs with conditionality (resilience standards in exchange for access); mandatory minimum haircuts on gilt repo; and a quarterly public NBFI gilt-leverage dashboard from the Bank/FCA.

// State-led: Instrument: Bank of England CNRF extension, FPC-mandated repo haircuts, Bank/FCA leverage dashboard from supervisory data.

The 2022 forced-seller dynamic has migrated to excluded hedge funds, but the Bank already owns the backstop and is actively consulting, so the marginal external gap is narrower.