Bank of England launches first system-wide exploratory scenario exercise

News release

The Bank of England (the Bank) has today launched its first system-wide exploratory scenario (SWES) exercise. The exercise aims to improve understanding of the behaviours of banks and non-bank financial institutions (NBFIs) in stressed financial market conditions. It will explore how those behaviours might interact to amplify shocks in UK financial markets that are core to UK financial stability.

Participating firms will include large banks, insurers, central counterparties and a variety of funds (pension funds, hedge funds, and funds managed by asset managers). This reflects the wide range of institutions engaged in UK financial markets. Participants will be actively engaged in both the design and execution of the exercise.

Recent events have shown that market-based finance (MBF) has been increasingly prone to sudden liquidity stresses during periods of market volatility. The March 2020 ‘dash for cash’ and the adverse gilt dynamics seen in September 2022, which required Bank intervention, act as examples.

The exercise aims to:

  • enhance understanding of the risks to and from NBFIs, and the behaviour of NBFIs and banks in stress, including what drives that behaviour; and
  • investigate how these behaviours and market dynamics can amplify shocks in markets and potentially bring about risks to UK financial stability.

Deputy Governor for Financial Stability, Jon Cunliffe, said:

“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. The launch of this exercise will provide valuable insight into the system-wide dynamics for banks and non-banks following a severe but plausible stress to financial markets.”

Participants will be asked to evaluate the impact of a severe but plausible stress to global financial markets, and consider what actions they would take in response to the scenario, with a focus on behaviours in UK financial markets.

The Bank will then seek to understand the collective actions and responses of these firms and how they might amplify the initial stress in UK financial markets. For instance, if a common response to the scenario is for participants to sell the same asset, then fire sale-type dynamics may occur, which can only be understood by taking a system-wide perspective.

The Bank, working closely with the Financial Conduct Authority and the Pensions Regulator, will bring together data and information from various parts of the financial system to develop system-wide and sector-specific insights – thereby accounting for amplification effects within the financial system.

The exercise is not a test of the resilience of the individual firms participating. Published materials will not provide information on any individual firms. The SWES markets of focus include the gilt market, gilt repo market, sterling corporate bond market and associated derivative markets.

The exercise will improve the Bank’s and participating firms’ understanding of how markets operate under stress, support efforts to address vulnerabilities in the domestic MBF system and help in contributions to ongoing international policy work.

The Bank will publish the full list of participants and details of the stress scenario later in the year.

A final report will be published in 2024, which will include the system-wide findings, implications for the SWES markets of focus, and any conclusions for our assessment of risks to UK financial stability.


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