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 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.