Financial repression: what does it mean for savers and investors?

Abstract

At the end of 2013 the real yields that the UK government had to pay on its debt were negative over the whole curve. Several possible explanations are available for this phenomenon – central bank action, regulatory changes, demographic developments and economic conditions. The first two can result from deliberate interaction by the state into the financial markets and can be labelled as financial repression. We explain the historic precedents for Governments to use financial repression to manage their debt, look into the influence of regulation on asset allocation for insurers and pension funds, and introduce the concept of a balance-sheet recession.

Why governments may opt for financial repression policies: selective credits and endogenous growth

“…Through a counterfactual analysis, they conclude that cost of debt service would have been lower in the post-1980 era had the same financial repression policies followed by the French governments. Fulcher et al (2014) argue that the British Government had over time also resorted to financial repression policies to manage public debt servicing.…”

British Actuarial Journal celebrates its 20th anniversary

“…There is an interesting debate to be had about whether market-based reporting merely documented actuarial liabilities as they runoff, or whether the new reporting techniques precipitated that decline (and, if so, whether this is a good thing). Now authors are turning their eyes to how the insurance and pensions industries may adapt to a low interest environment (Fulcher et al, 2014). We could move to an environment where all investment risk falls directly on the investor, but several papers (Clay et al, 2001;Ledlie et al, 2008;Eason et al, 2013) consider there is a still a role for guaranteed products, albeit with greater transparency and scrutiny of actuarial discretion.…”

“…Now authors are turning their eyes to how the insurance and pensions industries may adapt to a low interest environment (Fulcher et al ., 2014). We could move to an environment where all investment risk falls directly on the investor, but several papers (Clay et al ., 2001; Ledlie et al ., 2008; Eason et al ., 2013) consider there is a still a role for guaranteed products, albeit with greater transparency and scrutiny of actuarial discretion.…”