On 11 February 2025, the Bank of England (BoE) published a speech by its Governor, Andrew Bailey, entitled ‘Are we underestimating changes in financial markets?’.

In the speech, Mr Bailey discusses the scale and significance of changes to financial market activity in recent years and what the impact is on financial stability. He warns that the significance of these changes has not been fully taken on board in many assessments of the challenges facing financial stability and the tools needed to assess the risks created by the changes.

In light of fundamental changes in the dynamics of markets that have seen the impact of non-banks and market-based finance grow, creating potential new risks and vulnerabilities, Mr Bailey highlights the need to adapt new tools and approaches for assessment, surveillance and intervention. He outlines the importance of the BoE’s experience with two recent innovations: the system-wide exploratory scenario (SWES) exercise (designed to test the resilience of markets), and the Contingent NBFI Repo Facility (CNRF) (which is intended to tackle severe disruption in the gilt market that threatens financial stability due to shocks that increase the demand of non-bank financial institutions for liquidity).

Mr Bailey concludes by suggesting that the answer to the question, ‘Are we underestimating changes in financial markets?’, is yes. He notes that the pace of change is continuing and that the BoE and other authorities responsible for ensuring financial stability, both domestically and globally, need to keep their assessment and understanding up to speed, including through changes to their assessment tools and their tools of intervention.