Systemic Risk Survey Results - 2022 H1

Overview

The Bank of England’s financial stability objective is to protect and enhance the stability of the financial system of the United Kingdom. The Systemic Risk Survey contributes to this objective by quantifying and tracking, on a biannual basis, market participants’ views of risks to, and their confidence in, the stability of the UK financial system.^{footnote [1]}

The survey is generally completed by executives responsible for firms’ risk management or treasury functions. The results presented are based on responses to the survey and do not necessarily reflect the Bank of England’s views on risks to the UK financial system. Participants include UK banks and building societies, large foreign banks, asset managers, hedge funds, insurers, pension funds, large non-financial companies and central counterparties. Summary statistics are calculated by giving equal weight to each survey response.

Additional background information on the survey is available in the 2009 Q3 Quarterly Bulletin article ‘Bank of England Systemic Risk Survey’.

This report presents the results of the 2022 H1 survey, which was conducted between 24 January and 14 February. The survey period concluded before the Russian invasion of Ukraine took place.

Seventy participants took part in the 2022 H1 survey, representing a 71% response rate among those surveyed.

Survey summary 2022 H1

In 2022 H1 the key observations are:

• confidence in the stability of the UK financial system over the next three years has reduced slightly over the past six months but remains relatively high;
• the perceived probability of a high-impact event occurring over the short term has increased. In the medium term, the proportion of respondents citing the probability as very high or high has decreased; and
• cyber-attack remains the most cited risk to the UK financial system and the most challenging for firms to manage. Most respondents also cited inflation and geopolitical risks.

Confidence in the stability of the UK financial system

• Confidence in the stability of the UK financial system over the next three years was broadly unchanged compared to the previous survey, and remains at high levels. Fifty-one per cent of respondents judged themselves as being fairly confident (+7 percentage points), but respondents were a little less likely to judge themselves as being completely or very confident (46%, -4 percentage points).

Probability of a high-impact event in the UK financial system

• The percentage of respondents judging the probability of a high-impact event in the UK financial system over the short term, to be high or very high, increased from 22% to 31% since the 2021 H2 survey. But this remains relatively low compared to previous surveys, down from a peak of 73% in 2019 H2. The percentage judging the probability of such an event to be high or very high over the medium term decreased from 52% to 46%.

Sources of risk to the UK financial system

• Cyber-attack remains the most cited risk to the UK financial system (mentioned by 79% of respondents) and is also the most frequently cited as the number one source of risk (mentioned by 34% of respondents, an increase of 15 percentage points when compared to 2021 H2).
• Geopolitical risk (63%) and inflation risk (63%) were the second most cited sources of risk to the financial system. Since the previous survey, the number of respondents that cited inflation as a source of risk to the UK financial system increased by 30 percentage points.
• The number of respondents that cited pandemic risks remains high at 51%, but has fallen from 57% in the previous survey. In addition, 24% of respondents cited climate risk, an increase of 21 percentage points from the 2019 H1 survey.
• In contrast, UK political risk was cited by just 26% of respondents – the lowest level since the EU referendum (2016 H1 survey).

Most challenging risks to manage as a firm

• Cyber-attack was cited most frequently as the risk that would be most challenging to manage if it were to materialise (65% of respondents, +7 percentage points compared to 2021 H2).
• Inflation risk was cited as the second most challenging risk to manage, with 46% of respondents mentioning it. In the 2021 H2 survey, this was the fifth most frequently cited as most challenging to manage.
• Geopolitical risk remains the third most challenging to manage amongst the respondents at 40%.

Most probable risks to materialise

• Inflation risk (58%), cyber-attack (55%), pandemic risk (36%) and geopolitical risk (36%) were cited as the most probable risks to materialise.

Confidence in the UK financial system

Respondents were asked to assess the level of confidence they have in the stability of the UK financial system as a whole over the next three years.

Confidence in the stability of the UK financial system over the next three years was broadly unchanged compared to the previous survey, and remains at high levels. Fifty-one per cent of respondents judged themselves as being fairly confident (+7 percentage points), but respondents were a little less likely to judge themselves as being completely or very confident (46%, -4 percentage points) (Table A1). Chart 1 weights these responses into one measure.

Eighty-one per cent of respondents judged their confidence in the UK financial system as unchanged over the past six months (an increase of 9 percentage points when compared to 2021 H2), and 9% judged their confidence to have increased (-14 percentage points). Ten per cent of respondents suggested their confidence had decreased in the past six months.

Chart 1: Confidence in the stability of the UK financial system as a whole over the next three years ^(a)

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) Respondents were asked how much confidence they had in the stability of the UK financial system as a whole over the next three years. The net percentage balance is calculated by weighting responses as follows: complete confidence (1), very confident (0.5), fairly confident (0), not very confident (-0.5) and no confidence (-1). Bars show the contribution of each component to the net percentage balance.

Probability of a high-impact event in the UK financial system

Respondents were asked for their view on the probability of a high-impact event in the UK financial system in the short and medium term.^{footnote [2]}

The perceived probability of a high-impact event over the short term has increased but is still low relative to recent years, down from a peak of 73% in 2019 H2. The percentage of respondents judging the probability over the short term to be high or very high increased from 22% to 31% since the 2021 H2 survey. In line with this, the percentage of respondents judging the probability in the short term to be low or very low decreased slightly from 29% to 23% (-6 percentage points). The top panel of Chart 2 weights these probabilities into one measure.

Over the past six months, 39% of respondents believed that the probability of a high-impact event in the short-term has increased. This represents the most notable shift in sentiment since the previous survey. However, the bottom panel of Chart 2 weights these probabilities into one measure and shows that overall, the perceived probability of a high-impact event in the short-term remains relatively low compared to recent surveys. 51% of respondents believed that the probability remains unchanged and only 10% judged the probability to have decreased, compared to 36% in the last survey.

Chart 2: Probability of a high-impact event in the UK financial system over the short term ^{(a) (b)}

How respondents think this probability has changed over the past six months ^{(a) (b)}

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) Respondents were asked the probability of a high-impact event in the UK financial system in the short term. And also how they thought this probability had changed over the past six months. From the 2009 H2 survey onwards, short term was defined as 0–12 months.
• (b) The net percentage balance in the upper chart is calculated by weighting responses as follows: very high (1), high (0.5), medium (0), low (-0.5) and very low (-1). The net percentage balance in the lower chart is calculated as the percentage of respondents that perceived an increase, less the percentage that perceived a decrease. Bars show the contribution of each component to the net percentage balance.

The percentage of respondents judging the probability of a high-impact event to be high or very high over the medium term continued to decrease, with 46% of respondents making this judgement (-6 percentage points compared to the last survey and -17 percentage points compared to the 2019 H2 survey). However, the proportion of respondents judging the probability to be low or very low also decreased from 9% to 1%. The survey suggests most respondents now judge the probability of a high-impact event over the medium term to be at a medium level, with 53% making this judgement. The top panel of Chart 3 weights these probabilities into one measure.

There was an increase of 10 percentage points in the number of participants that believed the probability of a high-impact event had increased over the medium term (lower panel of Chart 3).

Chart 3: Probability of a high-impact event in the UK financial system over the medium term ^{(a) (b)}

How respondents think this probability has changed over the past six months ^{(a) (b)}

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) Respondents were asked the probability of a high-impact event in the UK financial system in the medium term. And also how they thought this probability had changed over the past six months. From the 2009 H2 survey onwards, medium term was defined as 1–3 years.
• (b) See footnote (b) of Chart 2.

Sources of risk to the UK financial system

Respondents were asked to list the five risks they thought would have the greatest impact on the UK financial system if they were to materialise. Answers were provided in free-text format, but have been grouped into the 25 categories shown in Table A2 in the data appendix to give an overview of the results.^{footnote [3]} The risks most frequently cited in the 2022 H1 survey were (Chart 4):

1. Cyber-attack (cited by 79% of respondents).

2=. Geopolitical risk (63%) and inflation risk (63%).

4. Pandemic risk (51%).

5. Operational risk^{footnote [4]} (29%).

6. UK political risk (26%).

Chart 4: Sources of risk to the UK financial system – mentioned by respondents ^{(a) (b)}

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) Respondents were asked to list the five risks they thought would have the greatest impact on the UK financial system if they were to materialise. Answers were in a free-text format and were grouped into categories after the questionnaires had been submitted; only one category was selected for each answer. Chart figures are the percentages of respondents citing a given risk at least once, among respondents citing at least one key risk. The chart shows the top five categories; see the data appendix for additional categories.
• (b) Risks cited in previous surveys have been regrouped into the categories used to describe the latest data.

The risk of a cyber-attack remains the most cited risk since the previous survey. Geopolitical risk was cited by 63% of respondents, consistently appearing as a top six most frequently cited risk since the 2014 H1 survey. Inflation risks were also cited by 63% of respondents, increasing from the fifth to the second most cited risk in comparison to the previous survey.

The operational risk was cited by 29% of respondents. This category no longer includes risks relating to climate change, which were previously counted within it. Climate risks (such as physical, transitional and environmental risks) are being cited more often – the proportion of respondents citing climate risks increased from only 4% in the 2019 H1 survey to 24%. UK political risk was cited by 26% of respondents, the lowest level since the EU referendum (2016 H1 survey).

Risks surrounding cryptocurrencies, a new category, were mentioned by 4% of respondents. However, no respondents have cited this risk as one of the most challenging to manage as a firm. The main concerns were around cryptocurrencies as an asset and a shift to cryptocurrencies (including stablecoins) being used for payments.

Other significant changes include: risks surrounding the low interest rate environment were no longer mentioned; risks around regulation/taxes were cited by just 9% of respondents, its lowest level since 2008; and a decrease in the proportion of respondents citing the risk of an overseas/global economic downturn to 6%, also its lowest level since 2008.

The risks most frequently cited as respondents’ number one risk (Chart 5) were:

1. Cyber-attack (34% of respondents viewed it as their number one risk).

2. Inflation risk (23%).

3. Geopolitical risk (13%).

4. Pandemic risk (11%).

Chart 5: ‘Number one’ sources of risk to the UK financial system ^{(a) (b)}

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) Respondents were asked to list the five risks they thought would have the greatest impact on the UK financial system if they were to materialise, in order of potential impact (ie greatest impact first). Answers were in a free-text format and were grouped into categories after the questionnaires had been submitted; only one category was selected for each answer. Chart figures are the percentages of respondents citing a given risk as their number one key risk, among respondents citing at least one key risk. The chart shows a limited number of most cited categories; see the data appendix for additional categories.
• (b) Risks cited in previous surveys have been regrouped into the categories used to describe the latest data.

Most challenging risks to manage as a firm

Respondents were asked to indicate which three of the five risks they identified would be the most challenging to manage if they were to materialise.

The most cited responses are shown below (Chart 6):

1. Cyber-attack (65% of respondents).

2. Inflation risk (46%).

3. Geopolitical risk (40%).

4. Pandemic risk (29%).

5. Operational risk (18%).

6. Climate risk (15%).

Chart 6: Risks most challenging to manage as a firm ^{(a) (b)}

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) After respondents had listed the five risks they believed would have the greatest impact on the UK financial system if they were to materialise, they were asked which three of these risks they would find most challenging to manage as a firm. Answers were in a free-text format and were grouped into categories after the questionnaires had been submitted; only one category was selected for each answer. Chart figures are the percentages of respondents citing a given risk at least once, among respondents citing at least one key risk. The chart shows the top five categories only; see the data appendix for additional categories.
• (b) Risks cited in previous surveys have been regrouped into the categories used to describe the latest data.

Inflation risk saw the most significant increase (+23 percentage points compared to the previous survey). Cyber-attack was the most cited at 65%, an increase of 7 percentage points. Pandemic risk also remains in the top six risks cited as most challenging to manage, but saw a fall in the percentage of respondents citing the risk (-11 percentage points).

Most probable risks to materialise

Respondents were asked to indicate which three of the five risks they thought would be the most probable to materialise.

The most cited responses are shown below (Chart 7):

1. Inflation risk (58% of respondents).

2. Cyber-attack (55%).

3=. Geopolitical risk (36%) and pandemic risk (36%).

5. Other (15%).

6. Risk of financial market disruption/dislocation (13%).

Chart 7: Risks most likely to materialise – as mentioned by respondents ^{(a) (b)}

Footnotes

• Sources: Bank of England Systemic Risk Surveys and Bank calculations.
• (a) After respondents had listed the five risks they believed would have the greatest impact on the UK financial system if they were to materialise, they were asked which three of these risks they thought were most likely to materialise. Answers were in a free-text format and were grouped into categories after the questionnaires had been submitted; only one category was selected for each answer. Chart figures are the percentages of respondents citing a given risk at least once, among respondents citing at least one key risk.
• (b) Risks cited in previous surveys have been regrouped into the categories used to describe the latest data.

Operational risk and UK political risk are no longer featured in the top six risks most likely to materialise compared to the 2021 H2 survey. UK political risk represented the most significant change with just 9% of respondents citing the risk as one that is most likely to materialise (-17 percentage points since the last survey). Cyber-attack remains at similar levels to the previous survey (-3 percentage points).

Data appendix

A full set of results in Excel and the survey questionnaire are available at the end of this page.

• Table A1

  Aggregate risks to the UK financial system ^{(a) (b)}

  	2017 H1	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2	2022 H1
  Probability of a high impact event in the UK financial system in the short term (c)
  Very high	7	2	2	13	6	15	3	1
  High	17	23	22	54	46	57	19	30
  Medium	50	44	51	29	35	21	48	46
  Low	24	29	24	3	12	6	24	21
  Very low	2	2	1	0	1	0	5	1
  Probability of a high impact event in the UK financial system in the medium term (c)
  Very high	18	13	7	6	9	6	9	9
  High	45	43	51	54	42	57	43	37
  Medium	33	38	37	31	38	32	40	53
  Low	4	7	6	9	10	4	9	1
  Very low	1	0	0	0	1	1	0	0
  Change in the probability over the past six months of a high-impact event in the UK financial system in the short term (d)
  Increased	43	36	26	73	44	68	7	39
  Unchanged	49	60	55	27	51	31	57	51
  Decreased	9	3	18	0	5	1	36	10
  Change in the probability over the past six months of a high-impact event in the UK financial system in the medium term (d)
  Increased	52	55	31	38	26	43	22	33
  Unchanged	44	42	63	61	73	56	66	61
  Decreased	4	3	6	1	1	1	12	6
  Confidence in the stability of the UK financial system as a whole over the next three years (e)
  Complete confidence	0	1	0	1	1	0	0	1
  Very confident	21	25	29	22	30	33	50	44
  Fairly confident	69	64	66	70	63	60	45	51
  Not very confident	10	10	6	7	6	7	5	3
  No confidence	0	0	0	0	0	0	0	0
  Change in confidence over the past six months (f)
  Increased	11	3	7	1	2	4	22	9
  Unchanged	61	69	78	58	77	73	72	81
  Decreased	28	28	15	40	21	24	5	10

  Footnotes

  • Sources: Bank of England Systemic Risk Surveys and Bank calculations.
  • (a) Entries are percentages of respondents and may not sum to 100% due to rounding.
  • (b) The survey has been undertaken biannually since 2009, following a pilot survey conducted in July 2008.
  • (c) Respondents were asked what the probability of a high-impact event in the UK financial system was in their view, for both the short and medium term. Since the 2009 H2 survey, short and medium term have been specifically identified as 0-12 months and 1-3 years respectively. These terms were not explicitly defined in earlier surveys.
  • (d) Respondents were asked how the probability had changed over the past six months for the short and medium term. Since the 2009 H2 survey, short and medium term have been specifically identified as 0-12 months and 1-3 years respectively. These terms were not explicitly defined in earlier surveys.
  • (e) Respondents were asked how much confidence they had in the stability of the UK financial system as a whole over the next three years.
  • (f) Respondents were asked how their confidence had changed over the past six months. The question was asked from 2010 H1 onwards.

• Table A2

  Sources of risk to the UK financial system ^{(a) (b) (c)}

  	2017 H1	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2	2022 H1
  Sources of risk to the UK financial system (d)
  Cyber attack	51	57	62	66	60	61	74	79
  Geopolitical risk	61	61	62	62	62	58	59	63
  Inflation risk	6	5	6	6	6	2	33	63
  Pandemic risk	0	0	0	0	0	0	57	51
  Operational risk	12	9	7	3	4	6	21	29
  UK political risk	81	91	91	97	93	96	40	26
  Climate risk (e)	0	1	1	1	4	15	33	24
  Risk of financial market disruption/dislocation	16	18	16	18	27	31	31	24
  Other	17	5	7	9	7	4	21	19
  Risk of a UK economic downturn	29	34	26	30	23	23	12	14
  Risk of property price falls	22	23	20	19	14	11	12	13
  Risk of tightening in credit conditions	2	2	2	2	5	0	5	11
  Risks around regulation/taxes	29	29	23	16	19	17	21	9
  Household/corporate credit risk	6	15	17	10	6	5	7	9
  Risk of an overseas/global economic downturn	26	18	25	30	38	38	14	6
  Risks surrounding monetary and fiscal policy	18	27	32	20	14	10	9	4
  Risk of financial institution failure/distress	12	11	11	10	12	14	7	4
  Risk surrounding cryptocurrencies (e)	0	0	0	0	0	0	0	4
  Funding risk	1	0	0	1	5	4	0	3
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	0	3
  Risk of loss of confidence in the authorities	1	0	3	3	4	4	2	1
  Sovereign risk	21	14	8	15	11	0	0	1
  Risk surrounding the low interest rate environment	14	6	2	0	2	12	3	0
  Risk of infrastructure disruption	2	5	5	7	5	4	2	0
  Risk of lack of confidence in ratings, valuations and disclosure	1	1	1	0	0	1	0	0
  Number one source of risk to the UK financial system (f)
  Cyber attack	7	7	14	8	14	6	19	34
  Inflation risk	3	0	0	0	1	0	12	23
  Geopolitical risk	16	7	11	3	5	5	2	13
  Pandemic risk	0	0	0	0	0	0	38	11
  Risk of a UK economic downturn	2	3	2	2	1	1	2	6
  Risk of tightening in credit conditions	1	2	0	0	0	0	2	3
  Other	0	1	1	0	0	0	0	3
  UK political risk	52	67	53	74	69	79	10	1
  Risk of financial market disruption/dislocation	3	2	2	3	2	0	3	1
  Risks around regulation/taxes	1	2	5	3	0	0	3	1
  Risks surrounding monetary and fiscal policy	1	2	0	1	1	2	2	1
  Risk of financial institution failure/distress	1	0	1	1	0	0	2	1
  Risk of an overseas/global economic downturn	2	1	5	2	2	5	2	0
  Climate risk	0	0	1	1	1	1	3	0
  Operational risk	3	0	0	0	0	1	0	0
  Risk of infrastructure disruption	0	0	0	0	2	0	0	0
  Household/corporate credit risk	0	2	2	0	0	0	0	0
  Risk of property price falls	2	1	1	0	0	0	0	0
  Risk surrounding the low interest rate environment	0	1	1	0	0	0	0	0
  Sovereign risk	6	1	0	0	0	0	0	0
  Risk of lack of confidence in ratings, valuations and disclosure	0	0	0	0	0	0	0	0
  Funding risk	0	0	0	0	0	0	0	0
  Risk of loss of confidence in the authorities	0	0	0	0	0	0	0	0
  Risk surrounding cryptocurrencies	0	0	0	0	0	0	0	0
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	0	0

  Footnotes

  • Sources: Bank of England Systemic Risk Surveys and Bank calculations.
  • (a) Respondents were asked which five risks they believed would have the greatest impact on the UK financial system if they were to materialise, in order of potential impact (ie greatest impact first). Answers were provided in a free format and were subsequently coded into the above categories; only one category was selected for each answer. Risks cited in previous surveys have been regrouped into the categories used to describe the latest data.
  • (b) The survey has been undertaken biannually since 2009, following a pilot survey conducted in July 2008.
  • (c) Figures are expressed as nearest whole integer, so may appear inconsistent with figures shown in the text of the survey.
  • (d) Percentages of respondents citing each risk at least once in their top five, among those citing at least one risk.
  • (e) Climate risk and Risk surrounding cryptocurrencies are new categories that have been introduced in 2022 H1.
  • (f) Percentages of respondents citing each risk as their number one risk (ie the risk with the greatest potential impact), among those citing at least one source of risk.

• Table A3

  Risks most challenging to manage as a firm ^{(a) (b) (c)}

  	2017 H1	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2	2022 H1
  Cyber attack	47	45	51	55	52	48	58	65
  Inflation risk	3	0	5	1	1	3	23	46
  Geopolitical risk	40	36	37	39	35	32	32	40
  Pandemic risk	0	0	0	0	0	0	40	29
  Operational risk	10	4	7	0	0	0	9	18
  Climate risk (d)	0	0	1	1	3	4	21	15
  Other	4	5	3	4	6	1	16	13
  UK political risk	62	70	52	80	82	75	25	10
  Risk of financial market disruption/dislocation	8	10	12	9	10	12	12	10
  Risks around regulation/taxes	15	15	15	7	11	8	16	6
  Risk of a UK economic downturn	11	14	12	10	6	14	7	4
  Household/corporate credit risk	1	2	5	4	0	3	7	4
  Risk of financial institution failure/distress	4	7	4	4	8	8	5	4
  Risk of an overseas/global economic downturn	14	6	7	16	14	21	4	4
  Risks surrounding monetary and fiscal policy	7	11	15	6	1	3	4	4
  Risk of tightening in credit conditions	1	0	1	2	1	0	4	4
  Risk of property price falls	4	12	5	7	6	1	4	3
  Funding risk	1	0	0	1	3	1	0	1
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	0	1
  Risk of infrastructure disruption	0	4	4	5	4	4	2	0
  Risk surrounding the low interest rate environment	4	2	0	0	0	5	0	0
  Risk of loss of confidence in the authorities	1	0	0	0	1	1	0	0
  Sovereign risk	11	5	3	5	8	0	0	0
  Risk of lack of confidence in ratings, valuations and disclosure	1	1	1	0	0	1	0	0
  Risk surrounding cryptocurrencies (d)	0	0	0	0	0	0	0	0
  Cited at least one key risk, but did not cite any risk as challenging to manage (%)	9	13	16	8	12	13	0	0
  Number of respondents citing at least one source of risk	101	96	87	89	81	84	58	70

  Footnotes

  • Sources: Bank of England Systemic Risk Surveys and Bank calculations.
  • (a) After respondents had listed the five risks they believed would have the greatest impact on the UK financial system if they were to materialise, they were asked which three of these risks they would find most challenging to manage as a firm. Answers were provided in a free format and were subsequently coded into the above categories; only one category was selected for each answer. Risks cited in previous surveys have been regrouped into the categories used to describe the latest data. Table entries are the percentages of respondents citing each risk at least once in this second question, among those citing at least one source of risk.
  • (b) The survey has been undertaken biannually since 2009, following a pilot survey conducted in July 2008.
  • (c) Figures are expressed as nearest whole integer, so may appear inconsistent with figures shown in the text of the survey.
  • (d) Climate risk and Risk surrounding cryptocurrencies are new categories that have been introduced in 2022 H1.