Bank of England set to stress test private markets

The Bank of England (BoE) is set to stress test private markets to identify risks, it has confirmed today.

The Bank said that while private markets have been resilient to date, they have grown significantly over the past few years and have “not been tested through a broad-based macroeconomic stress at their current size”.

“In order to enhance understanding of the broader risks and dynamics of private markets, the Financial Policy Committee (FPC) supports the next system-wide exploratory scenario (SWES), focused on the resilience of the private markets ecosystem," it said.

The stress test will begin this week and more information will be released then.

However, the Bank said the stress test will aim to:

• Explore risks and dynamics associated with private market finance through understanding the actions taken by banks and non-bank financial institutions (NBFIs) active in private markets in response to a shock, and how these actions may interact at a system level;
• Understand whether these interactions can amplify stress across the financial system and pose risks to UK financial stability and the provision of finance to the UK economy.

The private credit market is expected to be worth around £14.8tn by 2028, with around £1.2tn of that in the UK.

It comes as private markets access has been expanded in recent months to target more retail investors. Several long-term asset funds (LTAFs) have been launched in the UK including from Hargreaves Lansdown and Scottish Widows.