AIMA members were among the firms that took part in the Bank of England's system-wide exploratory scenario (SWES) exercise, exploring how the UK financial system would respond to a market shock.

It is the first exercise of its kind globally and the results were published today.

Findings from the SWES exercise include:

-         Firms’ collective actions amplify the initial shock. While non-bank resilience has increased in a number of sectors and firms over recent years, some of that resilience could deteriorate or change over time, risking greater amplification by the financial sector in the future.
-         Repo market resilience is central to supporting core markets in stress. During market stress, banks are unlikely to provide all of the additional repo financing NBFIs ask for, despite their willingness to draw on central bank lending facilities.
-         The SWES illustrates how actions taken by authorities and market participants following recent market shocks have improved gilt market resilience; but further work is required given the other vulnerabilities highlighted by this exercise.

A link to the full report can be found here.

AIMA CEO Jack Inglis commented on the results.

"We commend the Bank of England for undertaking the Systemic Wide Exercise Scenario (SWES) as a market-wide initiative rather than focusing on specific subsectors. This approach ensures a more comprehensive understanding of the financial system's resilience as well as areas of potential weakness. The collaborative, open and iterative nature of this exercise, with voluntary participation from institutions across the financial sector, underscores the industry’s collective commitment to strengthen risk management practices. We also note the encouraging findings regarding the resilience of hedge funds, which play a significant role in the UK financial ecosystem. We trust that the insights gained from this exercise will help foster a more robust and secure financial ecosystem."