BoE Report on Evaluation of Approach to Concurrent Stress Testing
BoE published a report on the evaluation, by the Independent Evaluation Office (IEO), of the effectiveness of the approach of BoE to concurrent stress testing. Also published is the response of BoE to this evaluation. The IEO report finds that the approach is successfully delivering on its principal objective and recommends a number of ways that the stress tests could be improved further. IEO has set out ten recommendations around three main themes. The evaluation was primarily conducted between June 2018 and January 2019.
The recommendations of the IEO fall under three themes. The first paves the way for more value to be extracted from this resource-intensive exercise, through suggestions to advance macro- and micro-prudential objectives. The second theme provides insights to guide BoE in enhancing delivery further by building efficiency and effectiveness. The final theme reflects on the challenges associated with communicating the stress test outcomes. It makes recommendations for ensuring that internal, public, and bilateral firm communications all support stress testing objectives to the fullest extent possible.
The report shows that concurrent stress testing is delivering value to policymakers, participating firms, and the industry more broadly. It serves both Financial Policy Committee (FPC) and Prudential Regulatory Committee (PRC) needs by providing insights into risks affecting the system and a common and comprehensive scenario to compare firms against one another. This allows policy making to be well- integrated and well-evidenced, which in turn supports significant credibility and accountability benefits. The openness of the exercise has proven to be particularly useful recently, as the tests have allowed BoE to communicate its view of the resilience of the banking system under various Brexit scenarios. However, the stress-testing framework is still maturing and, in this context, the IEO has seen some opportunities for refinement.
BoE is committed to implementing all of the recommendations by IEO. The BoE response to these recommendations details how BoE will respond to most of these recommendations. A small number of recommendations will require further work and BoE will report on these later in the year, as part of an update to its "approach to stress testing" document. The Annex to the BoE response summarizes the actions proposed by BoE. In February 2018, BoE's Court of Directors commissioned the IEO to conduct an evaluation of the effectiveness of BoE's approach to concurrent stress testing. The Court considered that an IEO evaluation at this juncture was appropriate, particularly as BoE was planning to review and update its approach to stress testing in 2019.
Related Links
Keywords: Europe, UK, Banking, Stress Testing, Concurrent Stress Testing, Recommendations, Brexit, IEO, BoE
Featured Experts

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM

Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Previous Article
BCB Communicates on Supervision of Open Banking ActivitiesRelated Articles
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA Issues Erratum for Technical Package on Reporting Framework 3.0
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA Publishes Risk Dashboard for Third Quarter of 2020
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB Analysis Shows Privacy as Biggest Concern in Use of Digital Euro
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB Finalizes Guide on Supervisory Approach to Bank Consolidation
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
SRB Chair Outlines Work Priorities for 2021
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC Selects Companies to Compete in Final Phase of Tech Sprint
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.