The Bank of England has started its first system-wide stress test of how the entire UK financial system would cope with a large economic shock taking place over 10 days.
Participants include London-based lenders and insurers such as Lloyds, Barclays, HSBC, Aviva and Legal & General; Wall Street banks Goldman Sachs (NYSE:GS), Citigroup, JPMorgan, Morgan Stanley (NYSE:MS) and Bank of America's Merrill Lynch; as well as pension schemes and clearing houses.
The tests will examine the potential effects of a system-wide exploratory scenario (SWES), where developments move rapidly, including yields on 10-year gilts increasing sharply, roughly in line or more severe than the largest observed historical moves.
Announced by the BoE in June, the stress test using this hypothetical SWES scenario is more severe than observed during the March 2020 ‘dash for cash’ following the first pandemic lockdowns or the September/October 2022 episode following the 'mini budget' of Liz Truss, with the SWES shocks "faster, wider ranging and more persistent".
The test began today as the BoE launched the first Round 1 of the scenario phase of the SWES, with a second round of the scenario phase to be launched in the second quarter of next year and then a final report by the end of 2024.
During the first phase, the central bank said it is asking firms to "consider the impact of a hypothetical stress scenario, tell us how it would impact their business, and the actions they would take in response".
The aim is to use these submissions "to understand how their actions and behaviours during a stress could affect wider UK financial stability, particularly the resilience of the core UK SWES markets of focus".
Full list of SWES participants:
abrdn PLC
Aviva Investors
Aviva Life & Pensions UK Limited
Banco Santander (LSE:BNC) S.A. (London Branch)
Barclays
Blackrock Group Limited
BNP Paribas (London branch)
Brevan Howard Asset Management LLP
BT Pension Scheme Trustees Limited
Capula Investment Management LLP
Citadel Advisors
Citibank, N.A. (London branch)
Citigroup Global Markets Limited
Columbia Threadneedle Investments
Deutsche Bank AG (NYSE:DB) (London branch)
Goldman Sachs (NYSE:GS) International
Greater Manchester Pension Fund
HSBC
HSBC Bank Pension Trust (UK) Limited
ICE Clear Europe Limited
Insight Investment Management (Global) Limited
JP Morgan Securities plc
JPMorgan Chase Bank, N.A. (London branch)
LCH Limited
Legal & General Assurance Society Limited
Legal & General Investment Management Limited
Lloyds Banking Group PLC (LSE:LLOY)
Lloyds Banking Group Pensions Trustees Limited
LMR Partners LLP
M&G Investment Management Limited
Man Group Investments Limited
Mariner Investment (Europe) LLP
Merrill Lynch International
Millennium Capital Partners LLP
Morgan Stanley (NYSE:MS) & Co. International plc
Pension Insurance Corporation plc
PIMCO Europe Limited
Point72 Europe (London) LLP
Railways Pension Trustee Company Limited
Rokos Capital Management LLP
Rothesay Life plc
Royal London Asset Management Limited
Santander UK
Schroder Investment Management Limited
Scottish Widows Limited
Standard Chartered PLC (LSE:STAN)
The Pension Protection Fund
The People's Pension Trustee Limited
The Prudential Assurance Company Limited
Universities Superannuation Scheme Limited
Vanguard Asset Management Limited
Vanguard Investments UK, Limited