Systemic Risk Survey Results - 2021 H2

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.

This is the first survey since it was paused after the 2019 H2 edition in light of the Covid-19 (Covid) pandemic. The next survey will be in six months. Additional background information on the survey is available in the 2009 Q3 Quarterly Bulletin article ‘Bank of England Systemic Risk Survey’.

Survey summary 2021 H2

In 2021 H2 the key observations are: confidence in the stability of the UK financial system over the next three years has increased over the past six months; the perceived probabilities of a high-impact event occurring over both the short and medium term has decreased over the same period; and cyber-attack risks were the most cited risk to the UK financial system and the most challenging for firms to manage. Most participants also cited risks from the current Covid pandemic.

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 2021 H2 survey, which was conducted between 16 August and 7 September.

Confidence in the stability of the UK financial system

• Confidence in the stability of the UK financial system over the next three years has increased relative to recent surveys. Respondents were more likely to judge themselves as being completely confident or very confident (50%, +17 percentage points since the 2019 H2 survey), and less likely to judge themselves as fairly confident (45%, -15 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 have decreased. The percentage of respondents judging the probability of such an event over the short term to be high or very high decreased significantly (from 73% to 22% since the 2019 H2 survey). The percentage judging the probability to be high or very high over the medium term also decreased from 64% to 52%.

Sources of risk to the UK financial system

• Cyber-attack is the most cited risk to the UK financial system (mentioned by 74% of respondents, an increase of 13 percentage points when compared to 2019 H2). Pandemic risk is the most frequently cited number one source of risk (mentioned by 38% of respondents).
• Geopolitical risk (59%) and pandemic risk (57%) were the second and third most cited sources of risk to the financial system, respectively.
• The number of respondents that cited UK political risk fell significantly to 40% and the operational risk category increased from 20% to 48% (this category included risks related to climate change).

Most challenging risks to manage as a firm

• Cyber-attack was cited the most often as the risk that would be most challenging to manage if it were to materialise (58% of respondents, +10 percentage points compared to 2019 H2).
• Pandemic-related risk was cited as the second most challenging risk to manage, with 40% of respondents mentioning this category, and geopolitical risk was third (32% of respondents).

Most probable risks to materialise

• In the first time this question has been included in this survey, cyber-attack, pandemic risk, geopolitical risk and operational risk (including risks related to climate change) were cited as the most probable risks to materialise.

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.^{footnote [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. Fifty-eight participants took part in the 2021 H2 survey between 16 August and 7 September, representing a 61% 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 has increased relative to the 2019 H2 survey. Respondents were more likely to judge themselves as being completely confident or very confident (50%, +17 percentage points since the 2019 H2 survey), and less likely to judge themselves fairly confident (45%, -15 percentage points) (Table A1). Chart 1 weights these responses into one measure.

Seventy-two per cent of respondents judged their confidence in the UK financial system as unchanged over the past six months, and 22% judged their confidence to have increased (an increase of 18 percentage points when compared to 2019 H2).

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]} In the most recent survey, the perceived probabilities of a high-impact event in the UK financial system over both the short and medium term decreased over the past six months.

The percentage of respondents judging the probability of a high impact event over the short term to be high or very high decreased from 73% to 22% since the 2019 H2 survey. The percentage of respondents judging the probability in the short term to be low or very low increased significantly from 6% to 29%. This is the highest this value has been since the 2017 H2 survey. The top panel of Chart 2 weights these probabilities into one measure.

Over the past six months 36% of respondents believed that the probability of a high-impact event has decreased and 57% believed that the probability is unchanged. Only 7% of respondents judged the probability to have increased, which is the lowest level since 2014 H1. The lower 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)}

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 decreased from 63% to 52%, while the proportion of respondents judging the probability to be low or very low increased from 5% to 9%. The top panel of Chart 3 weights these probabilities into one measure.

There was a decrease of 20 percentage points in the number of participants that believed the probability of a high-impact event had increased (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 23 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 2021 H2 survey were (Chart 4):

1. Cyber-attack (cited by 74% of respondents).
2. Geopolitical risk (59%).
3. Pandemic risk (57%).
4. Operational risk – this includes risks relating to climate change (48%).
5. UK political risk (40%).
6. Risk of financial market disruption (33%) and Inflation risk (33%).

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 became the most cited risk for the first time since the survey started. Risks surrounding pandemics (a new category) was cited by 57% of respondents, and geopolitical risks remained in the top three most cited risks for the seventh survey in a row.

There was a steep increase in the percentage of respondents citing operational risk. This category includes risks related to climate change, which was cited by the majority of responses in this category. The UK political risk category saw a decrease in the percentage of respondents citing it from 96% to 40%.

Other significant changes include: the proportion of respondents who mentioned risks related to higher inflation, which increased by 30 percentage points since the last survey; a decrease of 24 percentage points in the risk of an overseas/global economic downturn; and a decrease in the proportion of respondents citing the risk of a UK economic downturn to 12%.

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

1. Pandemic risk (38% of respondents viewed it as their number one risk).
2. Cyber-attack (19%).
3. Inflation risk (12%).
4. UK political risk (10%).

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 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.

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

1. Cyber-attack (58% of respondents).
2. Pandemic risk (40%).
3. Geopolitical risk (32%).
4. Operational risk (28%).
5. UK political risk (25%).
6. Inflation risk (23%).
7. Risks around regulation/taxes (16%).

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.

The categories of operational risk, inflation risk, cyber-attack and risks around regulation/taxes saw the most significant increases (+24 percentage points, +20 percentage points, +10 percentage points and +8 percentage points, respectively). The new category, pandemic risk, was second, with 40% of respondents citing it as most challenging to manage. In contrast, UK political risk, risk of an overseas/global economic downturn and risk of a UK economic downturn saw the biggest decreases (-51 percentage points, -17 percentage points and -7 percentage points, respectively).

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. Cyber-attack (58% of respondents).
2. Pandemic risk (46%).
3. Geopolitical risk (28%).
4. Operational risk (28%).
5. UK political risk (26%).
6. Inflation risk (23%).
7. Risk of financial market disruption/dislocation (19%).

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

Footnotes

• (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.

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)}

  	2016 H1	2016 H2	2017 H1	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 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	3
  High	41	37	17	23	22	54	46	57	19
  Medium	31	40	50	44	51	29	35	21	48
  Low	10	13	24	29	24	3	12	6	24
  Very low	3	4	2	2	1	0	1	0	5
  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	9
  High	31	39	45	43	51	54	42	57	43
  Medium	49	31	33	38	37	31	38	32	40
  Low	14	6	4	7	6	9	10	4	9
  Very low	0	0	1	0	0	0	1	1	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	79	55	43	36	26	73	44	68	7
  Unchanged	21	36	49	60	55	27	51	31	57
  Decreased	0	9	9	3	18	0	5	1	36
  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	22
  Unchanged	51	30	44	42	63	61	73	56	66
  Decreased	1	1	4	3	6	1	1	1	12
  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	0
  Very confident	13	19	21	25	29	22	30	33	50
  Fairly confident	76	60	69	64	66	70	63	60	45
  Not very confident	10	19	10	10	6	7	6	7	5
  No confidence	0	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	22
  Unchanged	51	46	61	69	78	58	77	73	72
  Decreased	48	49	28	28	15	40	21	24	5

  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)}

  	2016 H1	2016 H2	2017 H1	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2
  Sources of risk to the UK financial system (d)
  Cyber-attack	48	34	51	57	62	66	60	61	74
  Geopolitical risk	32	36	61	61	62	62	62	58	59
  Pandemic risk (e)	0	0	0	0	0	0	0	0	57
  Operational risk	18	16	12	10	8	3	7	20	48
  UK political risk	72	86	81	91	91	97	93	96	40
  Risk of financial market disruption/dislocation	37	30	16	18	16	18	27	31	33
  Inflation risk	0	9	6	5	6	6	6	2	33
  Risks around regulation/taxes	28	29	29	29	23	16	19	17	21
  Other	4	15	17	5	7	9	7	4	21
  Risk of an overseas/global economic downturn	59	37	26	18	25	30	38	38	14
  Risk of a UK economic downturn	31	24	29	34	26	30	23	23	12
  Risk of property price falls	25	29	22	23	20	19	14	11	12
  Risks surrounding monetary and fiscal policy	13	17	18	27	32	20	14	10	9
  Risk of financial institution failure/distress	7	28	12	11	11	10	12	14	7
  Household/corporate credit risk	7	1	6	15	17	10	6	5	7
  Risk of tightening in credit conditions	6	2	2	2	2	2	5	0	5
  Risk surrounding the low interest rate environment (f)	34	47	14	6	2	0	2	12	3
  Risk of infrastructure disruption	10	2	2	5	5	7	5	4	2
  Risk of loss of confidence in the authorities	0	1	1	0	3	3	4	4	2
  Funding risk	8	2	1	0	0	1	5	4	0
  Risk of lack of confidence in ratings, valuations and disclosure	4	0	1	1	1	0	0	1	0
  Sovereign risk	21	13	21	14	8	15	11	0	0
  Risks around public anger against, or distrust of, financial institutions	0	1	0	0	0	0	0	0	0
  Number one source of risk to the UK financial system (g)
  Pandemic risk (e)	0	0	0	0	0	0	0	0	38
  Cyber-attack	6	2	7	7	14	8	14	6	19
  Inflation risk	0	0	3	0	0	0	1	0	12
  UK political risk	65	55	52	67	53	74	69	79	10
  Operational risk	3	2	3	0	1	1	1	2	3
  Risk of financial market disruption/dislocation	1	5	3	2	2	3	2	0	3
  Risks around regulation/taxes	1	1	1	2	5	3	0	0	3
  Geopolitical risk	1	1	16	7	11	3	5	5	2
  Risk of an overseas/global economic downturn	8	7	2	1	5	2	2	5	2
  Risks surrounding monetary and fiscal policy	0	3	1	2	0	1	1	2	2
  Risk of a UK economic downturn	3	4	2	3	2	2	1	1	2
  Risk of financial institution failure/distress	0	7	1	0	1	1	0	0	2
  Risk of tightening in credit conditions	0	0	1	2	0	0	0	0	2
  Household/corporate credit risk	0	0	0	2	2	0	0	0	0
  Other	0	1	0	1	1	0	0	0	0
  Risk surrounding the low interest rate environment (f)	6	5	0	1	1	0	0	0	0
  Sovereign risk	1	2	6	1	0	0	0	0	0
  Risk of property price falls	1	1	2	1	1	0	0	0	0
  Risk of lack of confidence in ratings, valuations and disclosure	1	0	0	0	0	0	0	0	0
  Risk of loss of confidence in the authorities	0	0	0	0	0	0	0	0	0
  Funding risk	0	0	0	0	0	0	0	0	0
  Risk of infrastructure disruption	1	1	0	0	0	0	2	0	0
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	0	0	0
  Number of respondents citing at least one source of risk	71	94	101	96	87	89	81	84	58

  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) Pandemic risk is a new category introduced in 2021 H2 due to the Covid pandemic.
  • (f) 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.
  • (g) 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)}

  	2016 H1	2016 H2	2017 H1	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2
  Cyber-attack	38	28	47	45	51	55	52	48	58
  Pandemic risk (d)	0	0	0	0	0	0	0	0	40
  Geopolitical risk	12	14	40	36	37	39	35	32	32
  Operational risk	13	8	10	4	8	1	3	4	28
  UK political risk	53	64	62	70	52	80	82	75	25
  Inflation risk	0	5	3	0	5	1	1	3	23
  Risks around regulation/taxes	23	20	15	15	15	7	11	8	16
  Other	0	2	4	5	3	4	6	1	16
  Risk of financial market disruption/dislocation	28	18	8	10	12	9	10	12	12
  Risk of a UK economic downturn	17	11	11	14	12	10	6	14	7
  Household/corporate credit risk	2	0	1	2	5	4	0	3	7
  Risk of financial institution failure/distress	0	19	4	7	4	4	8	8	5
  Risk of an overseas/global economic downturn	30	20	14	6	7	16	14	21	4
  Risks surrounding monetary and fiscal policy	7	9	7	11	15	6	1	3	4
  Risk of property price falls	7	7	4	12	5	7	6	1	4
  Risk of tightening in credit conditions	0	0	1	0	1	2	1	0	4
  Risk of infrastructure disruption	8	2	0	4	4	5	4	4	2
  Risk surrounding the low interest rate environment (e)	15	22	4	2	0	0	0	5	0
  Risk of loss of confidence in the authorities	0	1	1	0	0	0	1	1	0
  Risk of lack of confidence in ratings, valuations and disclosure	3	0	1	1	1	0	0	1	0
  Sovereign risk	13	5	11	5	3	5	8	0	0
  Funding risk	2	1	1	0	0	1	3	1	0
  Risks around public anger against, or distrust of, financial institutions	0	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	0
  Number of respondents citing at least one source of risk	71	94	101	96	87	89	81	84	58

  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) Pandemic risk is a new category introduced in 2021 H2 due to the Covid pandemic.
  • (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.