Bank of England 2025 bank capital stress test launched

The Bank of England (BoE) has launched the 2025 bank capital stress test for the seven largest and most systemic UK banks and building societies. The exercise is the successor to the Annual Cyclical Scenario. The test involves a hypothetical stress scenario which will be used to assess the resilience of the UK banking system to deep simultaneous recessions in the UK and global economies, large falls in asset prices, higher global interest rates and a stressed level of misconduct costs. The stress scenario is not a forecast of macroeconomic and financial conditions. Rather, like previous concurrent stress test scenarios, it is intended to be a coherent "tail risk" scenario designed to be severe and broad enough to allow the Financial Policy Committee and Prudential Regulation Committee to assess the resilience of UK banks to a range of adverse shocks. The 2025 Bank Capital Stress Test has three elements, which include a macroeconomic scenario, a financial markets and traded risk scenario and a misconduct stress. The macroeconomic scenario involves a severe global aggregate supply shock leading to deep recessions in the UK and globally. The BoE also published key elements of the stress test. The results will be published at an aggregate and individual bank level in Q4. The results will be used to inform the setting of capital buffers for the UK banking system and individual participating banks, and to inform a broader understanding of risks in the banking system.

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