Bank of England to test private markets against severe shock including 35% FTSE fall and 7% rates

The Bank of England has launched its first system-wide exploratory scenario for private markets, extending financial-stability testing beyond banks to private equity, private credit, insurers and other investors.

The exercise is designed to test how a much larger part of the financial system would cope with a severe but plausible five-year shock. The scenario includes a 35% fall in the FTSE All Share, Bank Rate rising to 7%, inflation at 7% and UK GDP falling 4% in year two.

The central bank published the details on June 19, 2026. Financial News first reported the test that morning, and The Times later added more detail on the scenario and the firms expected to take part.

What the scenario assumes

The Bank of England's stress test begins with geopolitical tensions intensifying, global trade fragmenting and supply chains being disrupted.

It also assumes energy prices spike and technology firms exposed to artificial intelligence are hit particularly hard.

Alongside the drop in UK equities and the rise in rates, the scenario says leveraged loan spreads widen by 400 basis points and UK unemployment peaks at 7.5% during the recovery period.

The BoE is using the exercise to see how losses, refinancing stress and liquidity pressure might move through private markets over time rather than in a single point-in-time shock.

Which firms and sectors are in scope

The scenario covers private equity firms, private credit funds, banks, investors and insurers, reflecting the links between private markets and the broader financial system.

Reports differ on the final number of participants. Financial News said nearly 50 firms are expected to take part, while The Times reported 46 agreed participants, including Apollo, Ares, Blackstone, Barclays, NatWest, Goldman Sachs and Morgan Stanley.

That spread of participants matters because the Bank wants to understand how pressure could travel from fund managers and borrowers into banks and insurers, and then back into funding conditions for the wider market.

The inclusion of both private-market groups and major lenders shows the exercise is intended to map cross-market exposures, not just test individual firms in isolation.

Why regulators are widening the lens

The BoE's move reflects the rapid growth of private credit, private equity and other non-bank financial institutions, and the growing concern that stress in those markets could spill into more traditional parts of finance.

The Bank said it wants to understand how non-banks behave under stress and what that could mean for UK financial stability.

That is a notable shift in focus. Traditional bank stress tests are meant to assess capital resilience, but this exercise reaches into markets where leverage, liquidity terms and valuations can be harder for supervisors to observe.

The Financial Conduct Authority is also reviewing private asset valuations and possible conflicts in continuation and payment-in-kind fund structures, adding to the regulatory scrutiny around the sector.

Risks the Bank wants to test

The BoE said listed private investment structures would reprice sharply under the scenario, while semi-liquid structures could face redemption requests that exceed the limits they offer investors.

It also warned that private market fundraising could become more difficult, with some managers postponing new funds.

Among the risks highlighted are refinancing pressure in private credit and leveraged loans, high-profile defaults among private-equity-sponsored corporates, and valuation opacity in stressed conditions.

The Bank also flagged sporadic fraud risks, including double pledging of assets, as part of what could emerge in a strained market.

What happens next

Participating firms will now run the scenario and provide responses to regulators.

The Bank of England expects to publish initial findings in December 2026 and final aggregate findings in the second quarter of 2027.

Those results should give policymakers a better sense of where vulnerabilities sit in private markets, how exposed different types of firms may be and whether stress could feed back into banks, insurers or other funding channels.

For now, the launch signals that the BoE is treating private markets as a potential source of systemic risk, not just a fast-growing corner of the financial sector.