UK stress tests to cover trading book illiquidity and FVA

Bank of England to apply price shocks based on unwind periods

Bank of England
Bank of England: stress tests will focus on illiquidity

UK regulators' new stress-testing framework will include a price shock to bank trading book positions based largely on the speed at which they can be unwound in a period of stress. It will also require banks to recognise the impact of a stressed cost of funding on the valuation of uncollateralised derivatives.

The trading book focus is part of a new approach to stress testing announced by the Bank of England (BoE) today. It also includes an extension of stress scenarios to take in global as well

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