BoE launches first system-wide exploratory scenario exercise

Written by Adam Cadle

19/06/2023

The Bank of England (BoE) has launched its first system-wide exploratory scenario (SWES) exercise, aimed at improving understanding of the behaviours of banks and non-bank financial institutions in stressed financial market conditions.

Participating firms will include large banks, insurers, central counterparties and a variety of funds, including pension funds, hedge funds, and funds managed by asset managers, as a reflection of the wide range of institutions engaged in UK financial markets.

The exercise will also consider how those behaviours might interact to amplify shocks in UK financial markets that are core to UK financial stability.

Announcing the exercise, the BoE suggested that recent events have shown that market-based finance (MBF) has been increasingly prone to sudden liquidity stresses during periods of market volatility, highlighting the adverse gilt dynamics seen in September 2022, which required BoE intervention, act as an example of this.

BoE deputy governor for financial stability, Jon Cunliffe, stated: “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.”

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