Systemic Risk Survey Results - 2019 H2

The Systemic Risk Survey is conducted on a biannual basis, to quantify and track market participants’ views of risks to, and their confidence in, the stability of the UK financial system.
Published on 16 December 2019

Overview

The Systemic Risk Survey is a biannual survey that asks market participants about perceived risks to, and their confidence in, the stability of the UK financial system. 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’.

Survey summary 2019 H2

In 2019 H2 the key observations are: confidence in the stability of the UK financial system over the next three years is broadly unchanged; the perceived probabilities of a high-impact event occurring over both the short and medium term has increased; and UK political risk remained the most cited risk to the UK financial system and the most challenging for firms to manage.

The Systemic Risk Survey

  • The Systemic Risk Survey is conducted by the Bank of England on a biannual basis, to quantify and track market participants’ views of risks to, and their confidence in, the stability of the UK financial system.
  • This report presents the results of the 2019 H2 survey, which was conducted between 23 September and 17 October.

Confidence in the stability of the UK financial system

  • Confidence in the stability of the UK financial system over the next three years is broadly unchanged relative to recent surveys and around pre-EU referendum levels. Respondents were marginally both more likely to judge themselves as being completely confident or very confident (33%, +2 percentage points since the 2019 H1 survey), and less likely to judge themselves as fairly confident (60%, -3 percentage points).

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

  • The perceived probabilities of a high-impact event in the UK financial system over both the short and medium term has increased. The percentage of respondents judging the probability of such an event over the short term to be high or very high increased significantly (from 52% to 73% since the 2019 H1 survey). The percentage judging the probability to be high or very high over the medium term also increased (from 51% to 63%).

Sources of risk to the UK financial system

  • UK political risk remained the most cited risk to the UK financial system (mentioned by 96% of respondents, an increase of 3 percentage points when compared to 2019 H1) and also the most frequently cited number one source of risk (mentioned by 79% of respondents, +9 percentage points).
  • Cyber-attack (61%) and geopolitical risk (58%) were the second and third most cited sources of risk to the financial system, respectively.
  • The number of respondents that cited the risk of a global/overseas economic downturn remained stable at 38%, while the risk of financial market disruption/dislocation had a slight uptick from 27% to 31% of respondents, when compared to the previous survey.

Most challenging risks to manage as a firm

  • UK political risk was cited the most often as the risk that would be most challenging to manage if it were to materialise, for the eighth consecutive survey (75% of respondents, -5 percentage points compared to a year earlier).
  • The risk of a cyber-attack remained the second most challenging risk to manage, with 48% of respondents mentioning this category, which is a 7 percentage point decrease when compared to a year earlier

Introduction

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.[1]

The survey is typically completed by executives responsible for risk management and treasury functions at institutions including: UK banks and building societies; large foreign banks; asset managers; hedge funds; insurers; pension funds; large non-financial companies; and central counterparties. Eighty-four participants took part in the 2019 H2 survey between 23 September and 17 October, representing an 86% response rate among those surveyed.

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 is broadly unchanged relative to the 2019 H1 survey. Respondents were more likely to judge themselves as being completely confident or very confident (33%, +2 percentage points since the 2019 H1 survey), and less likely to judge themselves fairly confident (60%, -3 percentage points) (Table A1). When compared to 2016 H2, the proportion of respondents judging themselves as completely confident or very confident has increased by 12 percentage points and was around pre-EU referendum levels. Chart 1 weights these responses into one measure.

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

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.[2] In the 2019 H2 survey, the perceived probabilities of a high-impact event in the UK financial system over both the short and medium term increased.

The percentage of respondents judging the probability of a high impact event over the short term to be high or very high increased from 52% to 73% since the 2019 H1 survey, which is the highest this value has been since the survey started. And the percentage of respondents judging the probability to be low or very low decreased from 14% to 6%. The top panel of Chart 2 weights these probabilities into one measure.

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)

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 increased (from 51% to 63%), while the proportion of respondents judging the probability to be low or very low decreased significantly from 11% to 5%. The top panel of Chart 3 weights these probabilities into one measure.

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)

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.

Respondents were also asked how they perceived the risk of a high-impact event materialising to have changed over the past six months.

68% of respondents thought the probability of a high-impact event occurring in the short term had increased over the past six months (bottom panel of Chart 2). When considering the medium term, there was an increase of 17% in the number of participants that believed the probability had increased (bottom panel of Chart 3).

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 22 categories shown in Table A2 in the data appendix to give an overview of the results.[3]

The risks most frequently cited in the 2019 H2 survey were (Chart 4):

  1. UK political risk (cited by 96% of respondents).
  2. Cyber-attack (61%).
  3. Geopolitical risk (58%).
  4. Risk of a global/overseas economic downturn (38%).
  5. Risk of financial market disruption/dislocation (31%).
  6. Risk of a UK economic downturn (23%).
  7. Operational risk (20%).

Chart 4 Sources of risk to the UK financial system — mentioned by respondents (a)(b)

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.

Six of the top seven risks in the 2019 H2 survey had also featured in the top seven risks in the 2019 H1 survey. Risks around regulation/taxes was replaced by operational risk.

UK political risk remained the most cited risk to the UK financial system (mentioned by 96% of respondents).

The rankings of the cyber-attack and the geopolitical risk categories switched in 2019 H2, taking cyber-attack to second, cited by 61% of respondents, compared to 58% for geopolitical risk.

There was an increase in the proportion of respondents citing the risk of financial market disruption/dislocation (31%, +4 percentage points) and operational risk (20%, +13 percentage points). Both the risk of an overseas/global economic downturn and the risk of a UK economic downturn remained unchanged (38% and 23%, respectively).

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

  • UK political risk (79% of respondents viewed it as their number one risk).
  • Cyber-attack (6%).
  • Geopolitical risk (5%).
  • Risk of an overseas/global economic downturn (5%).

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

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 the top four 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.

UK political risk, cyber-attack and geopolitical risk were the most cited responses (Chart 6):

  1. UK political risk (75% of respondents).
  2. Cyber-attack (48%).
  3. Geopolitical risk (32%).
  4. Risk of a global/overseas economic downturn (21%).
  5. Risk of a UK economic downturn (14%).
  6. Risk of financial market disruption/dislocation (12%).
  7. Risk of financial institution failure/distress (8%).

Chart 6 Risks most challenging to manage as a firm (a)(b)

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.

While the rankings of these most challenging risks remained broadly unchanged, the categories of UK political risk, cyber-attack and geopolitical risks all saw a decreased number of citing’s since 2019 H1 (-7 percentage points, -4 percentage points and -3 percentage points, respectively). Comparatively, the categories of risk of an overseas/global downturn, risk of a UK economic downturn and risk of financial market disruption all saw a slight increase (+7 percentage points, +8 percentage points and +2 percentage points, respectively) in the proportion of participants that saw them as most challenging risks to manage.

  1. The Systemic Risk Survey has been undertaken biannually since 2009, following a pilot survey conducted in July 2008. It was published for the first time in November 2011. The survey results complement other sources of information used by the Bank to identify system-wide risks.

  2. 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.

  3. These summary categories are adjusted over time in order to better capture current risks cited; risks cited in previous surveys have been regrouped into the new categories to ensure comparability across survey rounds.

Data appendix

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

  • Aggregate risks to the UK financial system (a)(b)

    2016

    2017

    2018

    2019

    H1

    H2

    H1

    H2

    H1

    H2

    H1

    H2

    Probability of a high impact event in the UK financial system in the short term (c)

    Very high

    15

    5

    7

    2

    2

    13

    6

    15

    High

    41

    37

    17

    23

    22

    54

    46

    57

    Medium

    31

    40

    50

    44

    51

    29

    35

    21

    Low

    10

    13

    24

    29

    24

    3

    12

    6

    Very low

    3

    4

    2

    2

    1

    0

    1

    0

    Probability of a high impact event in the UK financial system in the medium term (c)

    Very high

    6

    23

    18

    13

    7

    6

    9

    6

    High

    31

    39

    45

    43

    51

    54

    42

    57

    Medium

    49

    31

    33

    38

    37

    31

    38

    32

    Low

    14

    6

    4

    7

    6

    9

    10

    4

    Very low

    0

    0

    1

    0

    0

    0

    1

    1

    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

    79

    55

    43

    36

    26

    73

    44

    68

    Unchanged

    21

    36

    49

    60

    55

    27

    51

    31

    Decreased

    0

    9

    9

    3

    18

    0

    5

    1

    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

    48

    69

    52

    55

    31

    38

    26

    43

    Unchanged

    51

    30

    44

    42

    63

    61

    73

    56

    Decreased

    1

    1

    4

    3

    6

    1

    1

    1

    Confidence in the stability of the UK financial system as a whole over the next three years (e)

    Complete confidence

    1

    2

    0

    1

    0

    1

    1

    0

    Very confident

    13

    19

    21

    25

    29

    22

    30

    33

    Fairly confident

    76

    60

    69

    64

    66

    70

    63

    60

    Not very confident

    10

    19

    10

    10

    6

    7

    6

    7

    No confidence

    0

    0

    0

    0

    0

    0

    0

    0

    Change in confidence over the past six months (f)

    Increased

    1

    5

    11

    3

    7

    1

    2

    4

    Unchanged

    51

    46

    61

    69

    78

    58

    77

    73

    Decreased

    48

    49

    28

    28

    15

    40

    21

    24

    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. Due to insufficient space in this table, results prior to 2016 H1 have not been included.
    (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.

  • Sources of risk to the UK financial system (a)(b)(c)

    2016

    2017

    2018

    2019

    H1

    H2

    H1

    H2

    H1

    H2

    H1

    H2

    Sources of risk to the UK financial system (d)

    UK political risk

    72

    86

    81

    91

    91

    97

    93

    96

    Cyber-attack

    48

    34

    51

    57

    62

    66

    60

    61

    Geopolitical risk

    32

    36

    61

    61

    62

    62

    62

    58

    Risk of an overseas/global economic downturn

    59

    37

    26

    18

    25

    30

    38

    38

    Risk of financial market disruption/dislocation

    37

    30

    16

    18

    16

    18

    27

    31

    Risk of a UK economic downturn

    31

    24

    29

    34

    26

    30

    23

    23

    Operational risk

    18

    16

    12

    10

    8

    3

    7

    20

    Risks around regulation/taxes

    28

    29

    29

    29

    23

    16

    19

    17

    Risk of financial institution failure/distress

    7

    28

    12

    11

    11

    10

    12

    14

    Risk surrounding the low interest rate environment (e)

    34

    47

    14

    6

    2

    0

    2

    12

    Risk of property price falls

    25

    29

    22

    23

    20

    19

    14

    11

    Risks surrounding monetary and fiscal policy

    13

    17

    18

    27

    32

    20

    14

    10

    Household/corporate credit risk

    7

    1

    6

    15

    17

    10

    6

    5

    Other

    4

    15

    17

    5

    7

    9

    7

    4

    Risk of infrastructure disruption

    10

    2

    2

    5

    5

    7

    5

    4

    Funding risk

    8

    2

    1

    0

    0

    1

    5

    4

    Risk of loss of confidence in the authorities

    0

    1

    1

    0

    3

    3

    4

    4

    Inflation risk

    0

    9

    6

    5

    6

    6

    6

    2

    Risk of lack of confidence in ratings, valuations and disclosure

    4

    0

    1

    1

    1

    0

    0

    1

    Risks around public anger against, or distrust of, financial institutions

    0

    1

    0

    0

    0

    0

    0

    0

    Risk of tightening in credit conditions

    6

    2

    2

    2

    2

    2

    5

    0

    Sovereign risk

    21

    13

    21

    14

    8

    15

    11

    0

    Number one source of risk to the UK financial system (f)

    UK political risk

    65

    55

    52

    67

    53

    74

    69

    79

    Cyber-attack

    6

    2

    7

    7

    14

    8

    14

    6

    Geopolitical risk

    1

    1

    16

    7

    11

    3

    5

    5

    Risk of an overseas/global economic downturn

    8

    7

    2

    1

    5

    2

    2

    5

    Risks surrounding monetary and fiscal policy

    0

    3

    1

    2

    0

    1

    1

    2

    Operational risk

    3

    2

    3

    0

    1

    1

    1

    2

    Risk of a UK economic downturn

    3

    4

    2

    3

    2

    2

    1

    1

    Risk of infrastructure disruption

    1

    1

    0

    0

    0

    0

    2

    0

    Risk of financial market disruption/dislocation

    1

    5

    3

    2

    2

    3

    2

    0

    Risks around regulation/taxes

    1

    1

    1

    2

    5

    3

    0

    0

    Household/corporate credit risk

    0

    0

    0

    2

    2

    0

    0

    0

    Risk of financial institution failure/distress

    0

    7

    1

    0

    1

    1

    0

    0

    Funding risk

    0

    0

    0

    0

    0

    0

    0

    0

    Inflation risk

    0

    0

    3

    0

    0

    0

    1

    0

    Risks around public anger against, or distrust of, financial institutions

    0

    0

    0

    0

    0

    0

    0

    0

    Risk of lack of confidence in ratings, valuations and disclosure

    1

    0

    0

    0

    0

    0

    0

    0

    Risk of loss of confidence in the authorities

    0

    0

    0

    0

    0

    0

    0

    0

    Other

    0

    1

    0

    1

    1

    0

    0

    0

    Risk of property price falls

    1

    1

    2

    1

    1

    0

    0

    0

    Sovereign risk

    1

    2

    6

    1

    0

    0

    0

    0

    Risk of tightening in credit conditions

    0

    0

    1

    2

    0

    0

    0

    0

    Risk surrounding the low interest rate environment (e)

    6

    5

    0

    1

    1

    0

    0

    0

    Number of respondents citing at least one source of risk

    71

    94

    101

    96

    87

    89

    81

    84

    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. Due to insufficient space in this table, results prior to 2016 H1 have not been included.
    (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) The definition of this risk includes risks associated with a snapback in low rates to more normal levels, as well as risks directly associated with low rates.
    (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.

  • Most challenging risks to manage as a firm (a)(b)(c)

    2016

    2017

    2018

    2019

    H1

    H2

    H1

    H2

    H1

    H2

    H1

    H2

    UK political risk

    53

    64

    62

    70

    52

    80

    82

    75

    Cyber-attack

    38

    28

    47

    45

    51

    55

    52

    48

    Geopolitical risk

    12

    14

    40

    36

    37

    39

    35

    32

    Risk of an overseas/global economic downturn

    30

    20

    14

    6

    7

    16

    14

    21

    Risk of a UK economic downturn

    17

    11

    11

    14

    12

    10

    6

    14

    Risk of financial market disruption/dislocation

    28

    18

    8

    10

    12

    9

    10

    12

    Risks around regulation/taxes

    23

    20

    15

    15

    15

    7

    11

    8

    Risk of financial institution failure/distress

    0

    19

    4

    7

    4

    4

    8

    8

    Risk surrounding the low interest rate environment (d)

    15

    22

    4

    2

    0

    0

    0

    5

    Risk of infrastructure disruption

    8

    2

    0

    4

    4

    5

    4

    4

    Operational risk

    13

    8

    10

    4

    8

    1

    3

    4

    Risks surrounding monetary and fiscal policy

    7

    9

    7

    11

    15

    6

    1

    3

    Inflation risk

    0

    5

    3

    0

    5

    1

    1

    3

    Household/corporate credit risk (e)

    2

    0

    1

    2

    5

    4

    0

    3

    Risk of property price falls

    7

    7

    4

    12

    5

    7

    6

    1

    Other

    0

    2

    4

    5

    3

    4

    6

    1

    Funding risk

    2

    1

    1

    0

    0

    1

    3

    1

    Risk of loss of confidence in the authorities (f)

    0

    1

    1

    0

    0

    0

    1

    1

    Risk of lack of confidence in ratings, valuations and disclosure

    3

    0

    1

    1

    1

    0

    0

    1

    Sovereign risk

    13

    5

    11

    5

    3

    5

    8

    0

    Risk of tightening in credit conditions

    0

    0

    1

    0

    1

    2

    1

    0

    Risks around public anger against, or distrust of, financial institutions

    0

    0

    0

    0

    0

    0

    0

    0

    Cited at least one key risk, but did not cite any risk as challenging to manage (%)

    15

    6

    9

    13

    16

    8

    12

    13

    Number of respondents citing at least one source of risk

    71

    94

    101

    96

    87

    89

    81

    84

    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. Due to insufficient space in this table, results prior to 2016 H1 have not been included.
    (c) Figures are expressed as nearest whole integer, so may appear inconsistent with figures shown in the text of the survey.
    (d) The definition of this risk includes risks associated with a snapback in low rates to more normal levels, as well as risks directly associated with low rates.
    (e) The ‘Household/corporate credit risk’ value for 2018 H2 has been revised from 0 to 4.
    (f) The ‘Risk of loss of confidence in the authorities’ value for 2018 H1 has been revised from 5 to 0. The ‘Risk of loss of confidence in the authorities’ value for 2019 H1 has been revised from 0 to 1.

This page was last updated 16 October 2020

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