For the 2016 United Kingdom FSAP, a comprehensive range of stress tests were conducted to assess the resilience of the U.K. banking system. The top-down (TD) solvency stress test conducted by the FSAP covered seven major U.K. banks and building societies representing over 80 percent of Prudential Regulatory Authority (PRA)-regulated banks' lending to the real economy. The FSAP stress scenario focused on a broad-based dislocation in financial markets, with sizeable jumps in yield curves and spillovers to vulnerable emerging market economies. This scenario, which could be triggered inter alia by disorderly monetary normalization in the U.S., explores in some detail the market impact from severe valuation losses from internationally-correlated shocks in credit spreads and term premia. The FSAP solvency stress test complements the 2015 concurrent stress test of the Bank of England (BoE), which covered the same set of banks and focused on a different global shock. In addition, the FSAP team used its own models and analysis to cross-validate bottom-up (BU)submissions on selected portfolios for the 2015 BoE concurrent stress test. Lastly, a suite of liquidity stress tests were also conducted for 10 large firms, including three large U.K. foreign-headquartered investment banks. The variety of scenarios, cut-off dates, stress testing cycles, and analytical models addresses model risk concerns and helps assess U.K. banking system resilience against a broad range of stresses crystallizing on different horizons.
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|Size: ||2.2 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2016|
|ISBN: ||9781498302340 (DRM-PDF)|
|Read Aloud: ||not allowed|