The Bank of England has launched the phase of its test program focused on private markets, sending 46 participating firms through a hypothetical five-year global recession that will model their behavior under severe stress. Published on 19 June 2026, this scenario marks the next stage of the second scenario of the whole system (SWES), which was first launched in December 2025, and is designed to reveal how banks and non-banks working in private equity and private credit can respond to a deep recession – and how their collective actions can de-risk the real economy and strengthen the UK economy.
The situation is deliberately difficult. It has been rated as the most risk-averse outcome in line with the Bank’s 2025 Extreme Financial Stress assessment, envisaging global supply and country shocks causing a deep recession, with disruptions to supply chains, sharp increases in energy prices, and a combination of inflation and deflation forcing policy to be higher. The shock plays out in three stages: in the first year, asset prices fall sharply and UK CPI inflation reaches 7% with an inflation index of up to 40; in the second year, UK GDP contracts by 4%, Bank Rate rises to 7%, FTSE All-Share falls by 35% and European leveraged-loan-loan spreads widen by 390 basis points; and within three to five years, the recovery is slow, with unemployment in the UK reaching 7.5% and GDP growing at a modest 0.7% per year. This mode gives participants about 200 different ways to approach the story.
This work is carried out under the supervision of the Financial Policy Committee and the Prudential Regulation Committee, supported by the PRA, the Financial Conduct Authority and the Pensions Regulator. Its 46 participants comprise the private market ecosystem: institutional investors such as insurers, pension funds, endowments and foundations; other asset managers that operate private equity and private debt funds and manage mortgage obligations; banks that provide profits to companies financed by sponsors; and asset managers active in leveraged loans, CLOs and high-yield bonds. Participation is voluntary, and firms are involved in shaping the situation and responding to it.
The motivation lies in the extent to which private markets have grown as a source of finance, and the weaknesses that growth can bring. The FPC has previously reported the risks arising from the use of power, the blurring of the rating and the connection with other credit markets, and SWES is designed to examine exactly these pressure points: how the abnormal rating behaves when the equity in the public markets drops too much, how the funds manage to pay the money when the redemption increases or how the borrowing should be released and how to review the strategies. stress among private markets, banks and institutional investors.
This work carries the weight of financial experts because private markets are now at the center of corporate financing but are not always as transparent as public markets. Private equity and private credit have become major lenders to UK companies, and the wrong response to stress – fire sales, sudden withdrawals, or valuation disputes between lenders, investors and sponsors – can strengthen conditions beyond what is warranted by fundamental shocks and eat away at corporate investment and employment. A two-round design, in which firms revise their responses after seeing aggregated feedback on how others behaved, is intended to accurately capture those amplification and feedback effects that a single-firm test would miss.
The findings will be phased in, giving the field a clear timeline to watch. The Bank will share data from its initial data collection in its July Financial Stability Report, as well as interim results from Round 1 later in 2026 and the final report in 2027; The Bank is committed to sharing consolidated results with other major banks, regulators and the Financial Stability Board. The exercise is an assessment rather than a pass or fail test of individual companies, so it won’t generate capital requirements – but its conclusions are likely to shape how private markets are monitored in the UK and, given international interest, how regulators elsewhere approach the fast-growing sector with the tools to monitor it.
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