Bank has been conducting its own stress test of banks since the
2007-09 financial crisis, supplementing European Union tests.
The aim is to spot flaws in business models and check if lenders
are holding enough capital to withstand big market shocks.
The BoE has already spoken about stress testing the asset
management sector as well, but in its Quarterly Bulletin
published on Wednesday, it went a step further to outline the
benefits of system-wide testing given the intimate links between
banks and market participants.
"While macroprudential authorities are already engaged in
analysis of interconnections between different parts of the
financial system, no authority has yet undertaken a
comprehensive system-wide stress test," a paper in the bulletin
Such a stress test would add clearing houses, hedge funds,
insurers and money market funds to the mix.
"Extending the reach of stress testing beyond the core banking
sector would help in guarding against any perverse incentives
stress tests and broader bank regulation creates for
institutions to move activities outside the core banking sector
into the so-called 'shadow banking sector'."
The Financial Stability Board, the G20 regulatory task force
chaired by BoE Governor Mark Carney, suggested last year that
regulators should consider system-wide testing.
The BoE said a paper from the International Monetary Fund next
year will suggest a way forward.
(Reporting by Huw Jones; editing by Susan Thomas)
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