And while the qualitative review will continue to be an important component of the 2021 stress test, the scope of this year’s exercise will be adapted accordingly. To help facilitate this change to the usual timetable, and in recognition of ongoing operational challenges within participating banks, banks will not be requested to submit baseline projections and the ring-fenced subgroups of stress-test participants will not be included in the 2021 test. The additional stressed projections will be submitted in June, as usual, with bank-specific results published in 2021 Q4. This will help inform further desktop analysis by the Bank in the first half of the year. Participating banks will be required to submit projections for credit impairments and credit risk-weighted assets in April, rather than the usual timing of June. The timetable for the 2021 solvency stress test will be staggered. It will test banks’ end-2020 balance sheets to a scenario similar to that generated by the reverse stress test. The aim of the 2021 solvency stress test will be to update and refine this assessment. The illustrative paths generated by that exercise were very severe, resulting in a cumulative loss of economic output associated with the Covid outbreak that was around twice as big as the Monetary Policy Committee’s (MPC) August 2020 central projection, and accompanied by a significant rise in unemployment.
This judgement was based on analysis in a ‘reverse stress test’ exercise, conducted in August 2020, which calculated how severe the economic paths for the UK and global economies would need to be in order to deplete regulatory capital buffers by around 5 percentage points. In December 2020, the Financial Policy Committee (FPC) judged that UK banks, in aggregate, have capital buffers that allow them to lend in and remain resilient to a wide range of possible outcomes for the UK and global economies. At this point stress tests are used to assess whether the buffers of capital that banks have built up are large enough to deal with how the prevailing stress could unfold.įollowing the Covid outbreak, the Bank cancelled the 2020 concurrent stress test and instead undertook desktop analysis of the resilience of the UK banking sector to the unfolding stress. Once the economy enters a real stress, such as that driven by the Covid-19 (Covid) outbreak, the focus changes.
Operational resilience of the financial sector Financial market infrastructure supervision
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