On 19 June 2023, the Bank of England ( BoE) released its very first system-wide exploratory circumstance ( SWES) workout.
The SWES workout intends to enhance the BoE’s understanding of the behaviours of banks and non-bank banks ( NBFIs) in stressed out monetary market conditions and how those behaviours may communicate to magnify shocks in UK monetary markets that are core to UK monetary stability. In specific, it is not a test of the durability of the private companies that have actually been asked to take part. Rather, its focus is system-wide, consisting of on essential UK monetary markets and their durability in times of tension.
Over the last few years, occasions in a variety of international markets have actually highlighted how liquidity conditions can rapidly degrade– highlighting a few of the vulnerabilities in market based financing. Due to these occasions, the BoE has actually asked for that a group of banks and NBFIs who are active in UK monetary markets take part in a collective SWES workout targeted at:
- Enhancing understanding of the dangers to and from NBFIs, and the behaviour of NBFIs and banks in tension, including what drives those behaviours.
- Examining how these behaviours and market characteristics can magnify shocks in markets and possibly position dangers to UK monetary stability.
The very first stage of the SWES workout issues preliminary info event. In a 2nd ‘tension circumstance’ stage later on in 2023, the BoE prepares to ask banks, insurance companies, funds and main counterparties to examine the effect of a serious however possible tension to international monetary markets– this stage will have 2 rounds, to allow the BoE to represent system-wide interactions and amplification results.
The BoE expects releasing a report to conclude the SWES workout in 2024.