A New Approach to Assessing Risks to Financial Stability

The Bank’s July 2006 Financial Stability Report (FSR) included a new approach to assessing risks to the stability of the UK financial system. This paper explains the methodology and analysis behind this work and outlines what is being done to improve and extend it. Section 1 of the paper sets out the conceptual rationale for this approach. Section 2 describes its practical implementation in the July 2006 FSR, with further detail on methodology provided in a series of annexes. Section 3 concludes by discussing how this framework is being developed over time to improve the analysis of risks to the UK financial system and to strengthen the management of these risks by the financial sector.

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