BoE stress test finds UK CCPs resilient to extreme shocks

UK central counterparties (CCPs) have enough resources to absorb losses during extreme shock events, the Bank of England has found, after completing a stress test on them.

The results of the exercise, published today (December 9), note that CCPs experienced less depletion of resources this year than they did in the 2024 test. This, the BoE said, was likely to be because the 2025 test had a more favourable exercise scenario, which included fewer “shocks beyond historical worsts” than last year’s version.

The bank noted that CCPs had more of their resources depleted in this year’s exercise than in the 2023 iteration, which was more comparable to the 2025 test in terms of scenario design than last year’s exercise had been. However, the BoE said the greater depletion of resources was to be expected, as the clearing houses had had more ‘rainy-day’ funds in 2023 following the stress events in 2022.

“The results of the test are encouraging,” said Sarah Breeden, the BoE’s deputy governor for financial stability, in the foreword to the published results. “They confirm that, in this scenario, UK CCPs would have sufficient pre-funded resources to absorb the default of the two members to which they have the largest exposures.”

The CCPs that took part in the exercise were Ice Clear, LCH and LME Clear.

The baseline credit stress scenario, known as Cover-2, simulated the defaults of two clearing members whose failure would generate the greatest depletion of the CCPs’ resources. Clearing members are groups of legally separate firms that CCPs combine for risk calculation purposes.

In the market stress scenario, the BoE assumed, in a two-day horizon, that the 10-year UK government bond yield had risen by 79 basis points, that the 10-year US Treasury yield had risen by 62bp and that the FTSE 100 index had dropped by 16%. It also assumed shocks to other metrics, such as commodity prices and foreign exchange rates.

The bank said it would not conduct a full public stress test of UK CCPs in 2026, as it planned to “build on work done this year and continue to develop our internal stress-testing tools”. It said the next public exercise would take place in 2027.

The BoE conducted its first large-scale stress test on CCPs in 2022, before carrying out annual tests in 2023, 2024 and 2025.