BoE has published a paper setting out the key elements of its 2016 stress test of the UK banking system to accompany the approach to stress testing as set out in October 2015 (see FReD 23 October 2015). The stress test contains three types of stresses, in common with the 2015 exercise:

  • a macroeconomic stress scenario, spanning a five-year period to the end of 2020;
  • a traded risk stress scenario, which is consistent with the content and calibration of the macroeconomic stress scenario; and
  • a misconduct costs stress, which is in addition to the macroeconomic and traded risk stress scenarios.

The seven banks and building societies covered in the 2016 stress test account for around 80% of the outstanding stock of PRA-regulated banks’ lending to the UK real economy. A spreadsheet to identify the variable paths for the test accompanied the announcement. (Source: BoE sets out key elements of 2016 stress test)