BoE runs ‘reverse stress test’ to prepare for renewed Covid crisis
Banks may have to take drastic “defensive actions” if UK suffers another major shock, BoE says
The Bank of England has run a “reverse stress test” that it hopes will help it prepare for possible further rounds of financial instability due to Covid-19.
Instead of imposing a fixed shock on bank balance sheets and modelling the response of capital ratios, the BoE’s financial policy committee took the results of the 2019 test as a given and asked what sort of Covid-related stress might cause such a major drop in capital. It found that two scenarios could do so, each of them raising UK
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