BoE policy-maker flags perils of ‘dynamic leverage’
Market participants need to fully understand the consequences of fund structures, says Jonathan Hall
A failure to understand “dynamic leverage” played a key role in the UK’s liability-driven investment (LDI) crisis in 2022, and could be a problem more widely, a Bank of England policy-maker said today (June 20).
Jonathan Hall, who sits on the BoE’s financial policy committee, said firms rebalancing their portfolios to deal with fluctuations in leverage could be imposing hidden costs on the financial system.
In the LDI crisis, as well as the 2020 ‘dash for cash’ and the commodities shock after
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