The Bank of England has launched the first stress test for hedge funds, pension funds and other financial firms as it looks to glean insight into how they would behave under pressure and how this could threaten the UK’s financial stability, according to a report by Bloomberg.

The Bank of England (BoE) has launched the first stress test for hedge funds, pension funds and other financial firms as it looks to glean insight into how they would behave under pressure and how this could threaten the UK’s financial stability, according to a report by Bloomberg. 

The central bank has asked firms to consider how they would react to a severe stress to global financial markets, and will then analyse their collective responses, for example a fire sale of assets. 

The report quotes Jon Cunliffe, deputy governor for financial stability as saying that the test “will provide valuable insight into the system-wide dynamics for banks and non-banks following a severe but plausible stress to financial markets”.

As well as hedge funds, participants include large banks, insurers and clearing houses, with a full report expected next year.