Bank of England System-Wide Exploratory Scenario Exercise and 2024 Central Counterparty Supervisory Stress Test

The Bank of England has published the final report on its system-wide exploratory scenario. The SWES was a 'system-wide' exercise, incorporating a wide range of financial firms and business models, focusing not on the resilience of individual participants, but the impact on important U.K. financial markets.

Through running the SWES, the BoE, working closely with and with the full support of the U.K. Prudential Regulation Authority, Financial Conduct Authority, and the Pensions Regulator, has drawn key financial stability conclusions, including that actions taken by authorities and market participants following recent market shocks have improved gilt market resilience, but further work is required given the other vulnerabilities highlighted by this exercise. The BoE considers that the SWES has proven to be an effective tool to understand system-level vulnerabilities. The BoE, alongside the FCA, will use the experience as a framework for future system-wide analysis and embed it into how market-wide surveillance is conducted. To support this the BoE will invest in its in-house capacity to model system-wide dynamics, supported by continuing engagement with market participants.

The BoE also published the results of its 2024 CCP Supervisory Stress Test. In the core credit stress test, the BoE found that all three U.K. CCPs have adequate pre-funded resources to cover a severe stress scenario and the default of the 'Cover-2' members—the two members whose default generates the greatest depletion of mutualized resources at the CCP. The BoE identified that in some very extreme but plausible scenarios there may be a risk to CCPs, and will follow-up with CCPs to probe how they capture the risks identified by these hypothetical scenarios via their own stress testing.

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