(Bloomberg) - The Bank of England is examining how hedge funds, pension funds and other financial firms behave under pressure and how this could threaten the UK’s financial stability.
The central bank will ask firms to consider how they would react to a severe stress to global financial markets, the BOE said as it launched the exercise on Monday. The BOE will then analyze their collective responses, for example a fire sale of assets.
The exercise “will provide valuable insight into the system-wide dynamics for banks and non-banks following a severe but plausible stress to financial markets,” said Jon Cunliffe, deputy governor for financial stability.
Participants will also include large banks, insurers and clearing houses, with a full report expected next year. The BOE has not yet announced which firms are taking part in the process, which is broader than its regular stress tests of the banking sector.
It follows the drama in the gilt market in September sparked by the government’s mini-budget and the “dash-for-cash” in March 2020, which both highlighted the risks posed by non-bank firms to the wider financial system.
By William Shaw and Lucy White
