Bank of England to test mini-budget-style stresses on financial institutions

The Bank said that it would produce a report next year listing the institutions that took part and how the systems performed.

August Graham
Monday 19 June 2023 16:13 BST
Deputy Governor Jon Cunliffe said the tests would give ‘valuable insight’. (Leon Neal/PA)
Deputy Governor Jon Cunliffe said the tests would give ‘valuable insight’. (Leon Neal/PA) (PA Archive)

The Bank of England has kicked off an exercise designed to test the resilience of banks and other financial institutions to weather similar shocks to last year’s mini-budget chaos.

The Bank said that it would put institutions through the stress test to help understand the risks to and those created by financial institutions apart from banks.

It will also probe how these organisations act under stress, and what drives their behaviour.

Further, the probe will look into how the way the market works, can amplify shocks and put the financial stability of the UK at risk.

“We regularly run scenario exercises with a variety of firms which support our efforts to protect and enhance the stability of the UK financial system,” said Jon Cunliffe, deputy governor for financial stability.

“The launch of this exercise will provide valuable insight into the system-wide dynamics for banks and non-banks following a severe but plausible stress to financial markets.”

It comes following the “dash for cash” in March 2020 and what the bank called the “adverse gilt dynamics” which followed September’s mini-budget.

Markets were cast into chaos in September when new Conservative leader Liz Truss set out her plan for the economy.

Much of the chaos was in the market for Government loans – known as gilts – which put pressure on so-called liability-driven investment funds, are used heavily by pension funds.

The Bank of England had to step in to help shore up some of these funds as they struggled to meet demand from investors trying to pull their cash out.

A final report on how the systems performed in the test will be published next year. It will not say how individual institutions did, however a list of all those who took part will be published.

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