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CP10/25: Evolving Climate Risk Expectations for UK Banks
In April, the PRA published Consultation Paper 10/25 proposing updates to its supervisory expectations on climate-related financial risks (CRFR). This marks a step-change from SS3/19, enhancing requirements in areas such as governance, risk management, scenario analysis, data, and disclosure.
For small and medium-sized UK banks, these proposals are not only about compliance, but also a chance to embed climate resilience in business strategy, protect value, and build long-term competitive strength.
How Severe Should a Liquidity Stress Test Be?
Liquidity stress testing remains a cornerstone of effective risk management and regulatory compliance for banks. However, a persistent challenge lies in interpreting what constitutes a “severe but plausible” stress scenario, particularly in the context of evolving depositor behaviours and increasing digitalisation of banking.
This paper aims to address this challenge by examining how stress scenarios can be robustly calibrated using empirical evidence backed by statistical methods, with particular focus on liquidity stress testing informing the Internal Liquidity Adequacy Assessment Process (ILAAP).
The 2025 ICAAP Scenarios — Stress Testing for Small- and Medium-sized Banks
Arriving hot on the heels of our earlier article on what the 2025 Bank Capital Test Means for small- and medium-sized banks, the Prudential Regulation Authority (PRA) has quietly published an accompanying set of stress parameters. These include both rates-up (supply shock) and rates-down (demand shock) scenarios, and can serve as a useful benchmark for firms not participating in concurrent stress testing. They may be particularly helpful for use in internal stress testing exercises, including within the Internal Capital Adequacy Assessment Process (ICAAP).
Stress Signals: What the 2025 Capital Test Means for Small- and Medium-sized Banks
With the Bank of England’s 2025 Bank Capital Stress Test now in motion, small and medium-sized banks should take note. While only the large banks participate directly, it is nonetheless of interest for other firms as they approach their next stress testing exercise. The latest publications bring stress parameters up to date from the 2024 Desk-based Stress Test, and some elements have changed. This article explores what banks can take away from the latest stress programme and how to reflect those developments in their own risk management processes.
PRA’s 2024 ICAAP Stress Test Scenarios for Non-Systemic Banks
On 27th June 2024, the Prudential Regulation Authority (“PRA”) published the ICAAP Scenarios for non-systemic UK banks, which are the supply shock scenario and the demand shock scenario. This article summarises the key factors of the scenarios and provides specific points on how small- and medium-sized banks should approach there stress testing design processes, with relation to the 2024 ICAAP Scenarios.
Stress testing overview
Stress testing will assist banks to ask the right question about its business model, capital adequacy, liquidity adequacy and franchise viability. This enables board and management teams to gain a forward looking view of its business and identify suitable management actions in a severe and plausible stress event.