In November 2024, the Bank of England published its final report documenting findings from its System-Wide Exploratory Scenario (SWES) exercise. In this speech, Lee Foulger sets out some of the key conclusions from the SWES about the resilience of core UK markets – and how the behaviour of market participants, though rational individually, can combine in ways that pose risk. He concludes with the importance of taking a system-wide lens when assessing risks to financial stability, in order to spot potential vulnerabilities that sector-specific exercises alone cannot identify.
Speech
Macroprudential policymakers have the primary objective of pursuing financial stability. We aim to identify and monitor the key risks to that objective, and take actions in advance of those risks crystallising to reduce their likelihood and potential impact. By ensuring that the financial system will continue to provide vital services even when shocks occur, we are also acting in support of sustainable long-term economic growth.
Since the introduction of these macroprudential responsibilities following the financial crisis, the shape of the financial system has changed significantly – with a shift towards non-bank finance, including market-based finance. This has led to a significant expansion of the landscape of systemic risk relevant to our objectives.
And in recent years, events in a number of global financial marketsfootnote[1] have brought to light vulnerabilities arising from market-based finance – vulnerabilities that can contribute to market dysfunction, transmit risk to banks and core markets, and have implications for real economy financing.
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