The Bank of England (BoE) has published a report setting out the results of the first concurrent stress test of the UK banking system. The exercise involved eight major UK banks and building societies and explored vulnerabilities stemming from a number of scenarios including a very severe housing market shock and a sharp rise or “snap back” in interest rates. The results of the exercise were used by the PRA Board and the Financial Policy Committee as part of their evaluation of the capital adequacy of individual banks and the resilience of the UK financial system as a whole.
The stress test was the first step towards the BoE’s medium-term stress-testing framework. The BoE will continue to build its own stress-testing capabilities and expects banks to do the same. From a qualitative perspective, the stress test revealed a number of areas of weakness in banks’ approach to stress testing and capital planning, including weak stress-testing model management frameworks and difficulties in providing accurate data.
View Stress testing the UK banking system: 2014 results, 16 December 2014