On 10 November 2023, the Bank of England (BoE) announced the launch of the scenario phase of the system-wide exploratory scenario (SWES).

The BoE launched the SWES in June 2023 to understand better how UK financial markets core to UK financial stability function under stress. The SWES consists of two phases: information gathering and scenario. The BoE has now started the scenario phase and has sent participants a hypothetical stress scenario that incorporates severe, but plausible, 10-day shocks to rates and risky asset prices.

The BoE is asking SWES participants to consider the impact of this hypothetical stress scenario, including how it would impact their business and what actions they would take in response. The BoE will then assess the system-wide consequences of these actions.

The shocks in the scenario incorporate many elements from recent market events. For example, comparing the SWES scenario to the largest 10-day movement in recent stresses:

• UK Government borrowing costs increase very sharply as yields on ten- year nominal gilts increase by 115 basis points, similar to the move seen during the Liability Driven Investment (LDI) episode.
• Sterling investment-grade corporate borrowing costs also sharply increase by around 130 basis points, as much as seen during the March 2020 dash for cash.
• Sovereign yields across many countries increase abruptly. For example, the rise in ten-year US Treasury note yields is on a par with the most severe seen since 2000, of around 75 basis points.

SWES participants are now considering the scenario and will be submitting their responses to it in January 2024. The second round of the scenario phase, which will reflect the actions that the participants take in the first round, will be launched in Q2 2024. The BoE expects to publish a final report on the SWES by end 2024.