’We regularly run scenario exercises with a variety of firms, which support our efforts to protect and enhance the stability of the UK financial system,’ says deputy governor
The Bank of England (BoE) has launched its first system-wide exploratory scenario (SWES) exercise to better understand how banks and non-bank financial institutions’ behaviours interact to impact the UK’s financial stability.
Participating firms will include insurers, large banks, central counterparties and a variety of funds – comprising of pension funds, hedge funds and funds managed by asset managers, a statement released earlier this week (19 June 2023) said.
Those firms will be asked to evaluate the impact of a severe, but plausible, stress scenario to global financial markets and consider what actions they would take in response, with a focus on behaviours in the UK financial market.
In addition to improving understanding of how markets operate under stress, the BoE hopes the exercise will support efforts to address vulnerabilities in the domestic market-based finance (MBF) system and help contribute to ongoing international policy work.
Jon Cunliffe, deputy governor for financial stability at the BoE, explained that the “launch of this exercise will provide valuable insight into the system-wide dynamics for banks and non-banks”.
“We regularly run scenario exercises with a variety of firms, which support our efforts to protect and enhance the stability of the UK financial system,” he added.
Data collection
Once responses have been collected, the BoE will then work with the FCA and the Pensions Regulator to bring together data and information from various parts of the financial systems to develop system-wide and sector-specific insights.
Read: Bank of England warns insurers of capital ‘uncertainty’ over climate risks
Read: Catch up on insurers’ full-year financial results for 2022/2023
Explore more finanical-related content here or discover other news stories here
Markets of focus in the SWES include the gilt market, gilt repo market, sterling corporate bond market and association derivative markets.
The BoE will publish the full list of participants and details of the stress scenario later this year, followed by a final report in 2024.
The exercise is not a test of resilience of the individual firms participating and published materials will not provide information on any individual firms.
No comments yet