As of late September, who on Earth knew about Liability-Driven Investment (LDI) and the threat it posed to the viability and liquidity of pension funds? Clearly not the Bank of England and regulatory authorities, who had to make £65bn of emergency funding available to ward off a debt market meltdown and the wider financial contagion such an event would trigger.
As Gordon Brown has warned, the UK’s shadow banking system poses an ongoing and material risk to our financial stability, with speculation and poor practice stoked by the rock-bottom interest rates of the past 14 years. But as interest rates rise at an eye-popping pace it is likely that the next financial crisis is being incubated in the UK’s multibillion-pound corporate debt market.
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