On 29 November 2024, the Bank of England (BoE) published the results of its third supervisory stress test of central counterparties (CCPs), which focuses on credit stress testing and CCPs’ resilience to the combination of a severe market stress and the default of two or more members. 

The exercise, which is exploratory in nature, is intended to provide insights into the resilience of UK CCPs and to enable the BoE to identify potential pockets of vulnerability that inform its ongoing supervisory and regulatory work, both domestically and internationally.

The BoE explains that the latest CCP supervisory stress test confirms the resilience of each UK CCP to a stress scenario similar to the worst-ever historical stress, combined with the default of the two members that lead to the largest mutualised losses. It notes that:

• Compared to the previous stress test, all CCPs are found to experience greater mutualised losses in this exercise, reflecting a combination of the shape of the scenario and the distribution of CCPs’ exposures, with shocks beyond the historical worst to some material products.

• Some CCPs are holding less pre-funded resources as their financial models have adjusted to a period of more benign market conditions, following the market volatility experienced in 2022 prior to the previous stress test.

• The stress test results do not suggest that this is a cause for concern, but the BoE continues to monitor CCPs’ resources through ongoing data collection and supervision.

The BoE plans to continue to invest in its stress-testing capabilities to support its surveillance and risk assessment, including through use of desk-based capabilities to survey a wider range of risks.