As summarised in Table 1: The purpose of the intervention was grounded in the risk to UK financial stability from dysfunction in the gilt market. The Bank’s Financial Policy Committee (FPC) identified this risk and recommended that the Bank take action to safeguard against it; The operation was strictly time limited. The purchase window was open for 13 business days, the minimum period judged necessary (through contact with market participants) for pension and LDI funds to improve their resilience. This hard deadline, though criticised in some quarters at the time, proved critical in driving timely recapitalisation, and also gave policy makers and markets confidence that the time profile would be very different from QE. Similarly, the commitment to unwind the gilt holdings in a timely but orderly way gave confidence that there would be no lasting impact on the Bank’s stock of gilt holdings – the variable voted on by the MPC during QE. [16] Unwind was completed using an innovative demand-sensitive approach over a period of four working weeks – broadly the same time it took to run up the holdings. [17] The operation was targeted only at those assets involved in the LDI adjustment – long-dated conventional and (in the latter phases of the operation) index-linked gilts, whereas QE operations took place across the (conventional) curve; and  Page 10  The operations were subject to a system of backstop reserve pricing, aimed at ensuring we purchased only as many assets as required to resolve the financial stability issue and recatalyse the market.
A temporary and targeted backstop purchase facility for gilts proved effective in ending the firesale dynamic, providing the LDI funds with a window to increase their resilience while minimising risks to public funds, market incentives and the stance of monetary policy – which, unlike in 2020, was now in a tightening phase. [3] In my remarks today, I want to discuss four main lessons that I take from those events: 1. The changing nature of systemic liquidity risk: though focus naturally alights on the idiosyncrasies of the autumn fiscal announcements and the UK LDI sector, the real import lies in the features the events had in common with the dash for cash and other similar developments: another reminder, if more were needed, that we face a new era of liquidity risk, originating outside the banking system, that can amplify shocks, destabilise core markets and undermine monetary and financial stability. 2. Public backstops vs private self insurance: as a central bank it fell to us to provide a public backstop to prevent systemic liquidity risk from undermining monetary and financial stability. At the same time, the events revealed material weaknesses in pension fund and LDI risk management. Given the costs involved, we must ensure public backstops do not end up substituting for a failure to achieve the appropriate level of private insurance against liquidity risk here and elsewhere in the non-bank sector. 3.