BoE publishes private markets SWES stress scenario

What does this mean?

The publication of the scenario moves the private markets SWES into its next phase and gives firms a clearer view of the vulnerabilities the BoE wants to test. 

System-wide behaviour under stress

Through its two-round structure, the SWES asks participants first to assess the impact of a common severe but plausible scenario and the actions they would take, before considering aggregated feedback on how other firms respond. This will allow the BoE to explore whether actions that are rational at firm level could amplify or dampen stress when taken together.

This makes behavioural assumptions central to the exercise. Actions such as capital preservation, reduced risk appetite, changes in asset allocation, reduced financing availability, redemption management, fund extensions or use of continuation vehicles could affect outcomes beyond the firm taking the action. For participating firms, and others active in private markets, governance and challenge around management actions may therefore be as important as the loss estimates themselves.

Valuation opacity and liquidity mismatch could amplify stress

The scenario brings into focus how quickly valuation and liquidity conditions can become more tightly linked in a prolonged downturn. The BoE highlights infrequent private market valuations, limited price discovery and expectation mismatches between lenders, investors and sponsors, raising the possibility that apparently stable marks could adjust more abruptly under stress.

At the same time, weaker revenues, elevated funding costs, impaired exit markets and sizeable refinancing needs may keep assets in portfolios for longer. This highlights that resilience depends not only on headline valuation methodologies, but also on the robustness of internal valuation inputs and credit assessments. 

Transmission to the real economy

A central question is whether stress in private and related credit markets could affect the flow of finance to UK corporates. This isn’t a test of individual firms, but an assessment of how firms’ actions under stress could interact across the financial system and affect the real economy.

Under the scenario, weaker earnings, higher borrowing costs and more difficult exit and refinancing conditions could put pressure on companies that depend on private market funding. The responses of banks, sponsors, asset managers and investors could either contain or deepen that pressure. This points to an important indirect channel through institutional investors, including pension schemes and insurers, where shifts in portfolios, risk appetite or capital allocation could have implications for policyholders and pension scheme members.

What do firms need to do?

Although the SWES is an exploratory exercise, it points to where regulatory attention may deepen. 

Firms with material private markets or related credit exposures should assess whether they have a sufficiently joined-up view of risk across borrowers, sponsors, funds, lenders, investors and financing channels.

They should also translate the scenario into portfolio, borrower and counterparty-level impacts, including revenue pressure, covenant strain, valuation changes and liquidity demands. Management actions should be tested for credibility under stress, with clear trigger points, escalation routes, decision rights and operational capacity to support timely execution.

Particular attention is likely to fall on valuation governance and liquidity management. This includes the quality of underlying valuation inputs, such as internal credit assessments, borrower performance data, covenant information and exit assumptions. Firms should also consider whether redemption arrangements, fund extensions, exposure to maturity walls, third-party dependencies, data and reporting capabilities are robust enough to support decisions in a severe and correlated stress environment.

Next steps

The BoE expects to share interim Round 1 findings later in 2026 and its final report in 2027. Firms should track those outputs and use them to test their own risk assumptions.