Bank Of England 2015 Concurrent Stress Testing Exercise - Scenario & Methodology

The Bank of England has published details of its 2015 stress testing exercise for the largest UK banks and building societies, its second concurrent exercise (the first was in 2014).

This year's exercise is focused on assessing UK banks' vulnerability to a synchronised global downturn affecting Asia and the Euro area, coupled with amplifying global disinflationary pressures, and the resultant impact on the UK. The scenario also incorporates the assessment of the impact of a reduction in global risk appetite, particularly in indebted economies, as well as a number of counterparty defaults.

Given the focus of the scenario on stress in emerging economies and the new methodology created for traded risk, the 2015 exercise is likely to better test the vulnerabilities of global, non-retail focussed banks. The exercise appears to be more onerous on firms overall, whilst assessing different vulnerabilities.