The Bank of England on Tuesday said that it will review how it stress tests banks from next year.

The UK’s central bank said that its annual health check of major lenders will do away with the Annual Cyclical Scenario (ACS) stress test for 2024 and instead run a desk-based stress test. As a result, only aggregate results will be published similar to the emergency desk-based test which took place during the Covid-19 pandemic.

The BoE added that the desk-based exercise will use Bank models and expertise to test the resilience of the UK banking system, and that this exercise would allow for that resilience to be tested to more than one adverse macroeconomic scenario.

The bank said that it will also take stock of, and update, its framework for concurrent bank stress testing in 2024, and consider whether more banks should be added to the testing.

Alongside the desk-based stress test exercise, the Bank is currently carrying out a system-wide exploratory scenario (SWES), launched in June, which aims to improve understanding of the behaviours of banks and non-bank financial institutions in stressed financial market conditions.

This shift to a desk-based test may be short-lived however, with the BoE saying that it intends to return to a concurrent exercise involving firm submissions of stressed projections in 2025.

The decisions were announced in a Financial Policy Summary and Record published following a meeting of the BoE's Financial Policy Committee (FPC) which regularly meets to identify risks to financial stability and agree actions aimed at safeguarding the UK financial system's resilience.

The FPC said that the UK banking system is “well capitalised, supported by strong recent profitability, and has high levels of liquidity.”

The body found that banks continue to support households and businesses even if economic and financial conditions were to be substantially worse than expected.

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