Bank of England Publishes Details of Its 2018 Stress Test

The Bank of England has published a report entitled "Stress testing in the U.K. banking system: key elements of the 2018 stress test," providing details of the Annual Cyclical Scenario, which is the only stress test that the BoE will conduct in 2018. The report is accompanied by detailed guidance for participating banks and building societies.

The ACS will examine the impact on participant banks and building societies of three types of severe stress, which will be assumed to be synchronized. These are: (i) a U.K. and global macroeconomic stress; (ii) a traded risk stress (linked to a financial market scenario consistent with the macroeconomic scenario); and (iii) an independent misconduct costs stress. Seven banks and building societies will participate in the 2018 ACS. The report states that these participants account for around 80% of the outstanding stock of lending to the U.K. real economy by banks regulated by the Prudential Regulation Authority.

Aspects of the 2018 ACS will be the same as in the 2017 stress test. However, the hurdle rates (the minimum thresholds above which participants will be expected to maintain their capital positions in a stress scenario) will differ.

The BoE expects to publish the results of the stress test in Q4 2018.

View the report.

View the guidance for participating banks and building societies.