The Bank of England has launched its first system-wide exploratory scenario (SWES) exercise. The SWES will improve BoE’s understanding of the behaviours of banks and non-bank financial institutions (NBFIs) during stressed financial market conditions, and how those behaviours might interact to amplify shocks in UK financial markets that are core to UK financial stability. BoE is working closely with the Financial Conduct Authority (FCA), The Pensions Regulator (TPR) and other regulators on this exercise.
BoE said in a statement: “We have requested that a group of banks and NBFIs who are active in UK financial markets participate in a collaborative SWES exercise to enhance understanding of the risks to and from NBFIs, and the behaviour of NBFIs and banks in stress, including what drives those behaviours, and investigate how these behaviours and market dynamics can amplify shocks in markets and potentially pose risks to UK financial stability.”
The SWES is the first exercise of its kind, and it offers a novel opportunity to better understand system-wide dynamics. The exercise will focus on how the actions of individual financial firms can interact to exacerbate shocks, and on the resulting impact on a specific set of important UK financial markets – the SWES ‘markets of focus’.
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