Systemic Risk Survey Results - 2022 H2

Overview

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 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.

Additional background information on the survey is available in the 2009 Q3 Quarterly Bulletin article ‘Bank of England Systemic Risk Survey’.

This report presents the results of the 2022 H2 survey, which was conducted between 27 July and 26 August.

Sixty-five participants took part in the 2022 H2 survey, representing a 64% response rate among those surveyed.

Key results from 2022 H2 survey

• The perceived probability of a high-impact event in the UK financial system occurring over both the short term and the medium term has increased significantly.
• But confidence in the stability of the UK financial system over the next three years remains high.
• Cyber attack remains the most cited risk to the UK financial system, followed closely by inflation and geopolitical risks.
• Pandemic risk was cited by far fewer respondents than in H1, but remains among the most frequently cited perceived risks to the financial system.
• Inflation risk is considered the most challenging risk to manage for firms, followed closely by cyber attack.

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 UK financial system remains high. Fifty-five per cent of respondents judged themselves as being fairly confident (+4 percentage points), but respondents were a little less likely to judge themselves as being completely or very confident (42%, -4 percentage points). (see Table A1 in the data appendix). Chart 1 weights these responses into one measure.

Seventy-one per cent of respondents judged their confidence in the UK financial system as unchanged over the past six months, and none judged their confidence to have increased, while 29% responded that their confidence had decreased in the past six months.

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]}

The perceived probability of a high-impact event over the short term (0–12 months) has increased significantly. The percentage of respondents judging that probability to be high or very high doubled from 31% to 62% since the 2022 H1 survey, compared to its peak of 73% in the 2019 H2 survey. Correspondingly, the percentage of respondents judging the probability in the short term to be low or very low decreased from 23% to 3%. The top panel of Chart 2 weights these probabilities into one measure.

Eighty-three per cent of respondents believed that the probability of a high-impact event in the short term had increased over the past six months, a significant increase from 39% in the 2022 H1 survey. Fifteen per cent of respondents believed that the probability remained unchanged and 2% judged the probability to have decreased. The bottom 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. ↩ ↩

Over the medium term (1–3 years), 72% of respondents judged the probability of a high-impact event to be high or very high (+26 percentage points compared to the 2022 H1 survey) marking a series high. A majority (55%) of respondents judged the probability of a high-impact event over the medium term to be at a high level. The top panel of Chart 3 weights these probabilities into one measure.

Sixty-nine per cent of respondents believed the probability of a high-impact event had increased over the medium term.

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 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 a free-text format, but have been grouped into the 25 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 2022 H2 survey were (Chart 4):

1. Cyber attack (cited by 74% of respondents).

2=. Geopolitical risk (72%) and inflation risk (72%).

4. UK political risk (34%).

5. Pandemic risk (31%).

6. Climate risk (23%).

Chart 4: Perceived key 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. 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 six 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 remains the most cited. Geopolitical risk was cited by 72% of respondents and has consistently appeared among the top six most frequently cited risks since the 2014 H1 survey. Inflation risks were also cited by 72% of respondents. These three most frequently cited risks are unchanged from the 2022 H1 survey.

Outside of the top six cited risks, other notable changes include respondents citing risk of an overseas/global economic downturn, which increased to 20%. This is in contrast to this risk category being at its lowest level (6%) since the survey began for respondents in the 2022 H1 survey. The perceived risk of a UK economic downturn also increased to 20% (+6 percentage points).

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

1. Inflation risk (38% of respondents viewed it as their number one risk).

2=. Cyber attack (17%) and geopolitical risk (17%).

4. Risk of a UK economic downturn (8%).

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 ‘number one’ sources of risk that have been cited by at least 20% of respondents in a given survey; see the data appendix for more detail. ↩
• (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. Inflation risk (61% of respondents).

2. Cyber attack (56%).

3. Geopolitical risk (48%).

4. UK political risk (14%).

5=. Climate risk (13%) and risk of a UK economic downturn (13%).

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 six 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. ↩

Inflation risk is now considered the most challenging risk to manage by a majority of respondents. At 61%, the proportion citing this as one of the most challenging risks has increased sharply (+15 percentage points) since the previous survey. Cyber attack was the second most frequently cited at 56%, a decrease of 9 percentage points. Geopolitical risk saw an increase of 8 percentage points since the 2022 H1 survey.

Notably, pandemic risk has fallen out of the top six most challenging risks for surveyed firms, with a 20 percentage point decrease in the proportion of respondents selecting it since the 2022 H1 survey. In contrast, UK political risk enters the top six in this survey, with 14% of respondents selecting this as one of their most challenging risks to manage (+4 percentage points since the 2022 H1 survey).

Key risks most likely to materialise

Respondents were asked to indicate which three of the five risks they thought would be the most probable to materialise.^{footnote [4]}

The most cited responses are shown below (Chart 7):

1. Inflation risk (63% of respondents, +5 percentage points from 2022 H1).

2. Geopolitical risk (54%, +18).

3. Cyber attack (37%, -18).

4. Risk of a UK economic downturn (20%, +10).

5=. UK political risk (18%, +10) and risk of an overseas economic downturn (18%, +15).

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

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 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. ↩
• (c) Risk of financial institution failure, funding risk, risk of property price falls, risks around regulations/taxes, sovereign risk and pandemic risk were each selected by fewer than 2% of respondents, and have been combined into the ‘Other’ category in this chart. ↩

Inflation risk, geopolitical risk and cyber attack remain the three risks considered most likely to materialise by respondents. Risk of a UK economic downturn, UK political risk, and risk of tightening credit conditions were all cited as risks most likely to materialise by 10% more respondents than in the 2022 H1 survey, while the proportion citing risk of an overseas economic downturn increased by 15 percentage points.

Meanwhile, the perceived likelihood of pandemic risk has fallen significantly, being cited by just 2% of respondents compared to 36% in the 2022 H1 survey.

Data appendix

• Table A1

  Aggregate risks to the UK financial system ^{(a) (b)}

  	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2	2022 H1	2022 H2
  Probability of a high-impact event in the UK financial system in the short term (c)
  Very high	2	2	13	6	15	3	1	14
  High	23	22	54	46	57	19	30	48
  Medium	44	51	29	35	21	48	46	35
  Low	29	24	3	12	6	24	21	3
  Very low	2	1	0	1	0	5	1	0
  Probability of a high-impact event in the UK financial system in the medium term (c)
  Very high	13	7	6	9	6	9	9	17
  High	43	51	54	42	57	43	37	55
  Medium	38	37	31	38	32	40	53	26
  Low	7	6	9	10	4	9	1	2
  Very low	0	0	0	1	1	0	0	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	36	26	73	44	68	7	39	83
  Unchanged	60	55	27	51	31	57	51	15
  Decreased	3	18	0	5	1	36	10	2
  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	55	31	38	26	43	22	33	69
  Unchanged	42	63	61	73	56	66	61	29
  Decreased	3	6	1	1	1	12	6	2
  Confidence in the stability of the UK financial system as a whole over the next three years (e)
  Complete confidence	1	0	1	1	0	0	1	0
  Very confident	25	29	22	30	33	50	44	42
  Fairly confident	64	66	70	63	60	45	51	55
  Not very confident	10	6	7	6	7	5	3	3
  No confidence	0	0	0	0	0	0	0	0
  Change in confidence over the past six months (f)
  Increased	3	7	1	2	4	22	9	0
  Unchanged	69	78	58	77	73	72	81	71
  Decreased	28	15	40	21	24	5	10	29

  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. Between 2020 H1 and 2021 H1, the survey was paused due to Covid.
  • (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) (d)}

  	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2	2022 H1	2022 H2
  Cyber attack	57	62	66	60	61	74	79	74
  Geopolitical risk	61	62	62	62	58	59	63	72
  Inflation risk	5	6	6	6	2	33	63	72
  UK political risk	91	91	97	93	96	40	26	34
  Pandemic risk	0	0	0	0	0	57	51	31
  Climate risk	1	1	1	4	15	33	24	23
  Other	5	7	9	7	4	21	18	23
  Risk of an overseas/global economic downturn	18	25	30	38	38	14	6	20
  Risk of a UK economic downturn	34	26	30	23	23	12	14	20
  Operational risk	9	7	3	4	6	21	29	20
  Risk of financial market disruption/dislocation	18	16	18	27	31	31	24	17
  Risk of tightening in credit conditions	2	2	2	5	0	5	11	17
  Household/corporate credit risk	15	17	10	6	5	7	9	8
  Risks around regulation/taxes	29	23	16	19	17	21	9	6
  Risk of financial institution failure/distress	11	11	10	12	14	7	4	6
  Risks surrounding monetary and fiscal policy	27	32	20	14	10	9	4	5
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	3	5
  Risk of property price falls	23	20	19	14	11	12	13	3
  Sovereign risk	14	8	15	11	0	0	1	2
  Funding risk	0	0	1	5	4	0	3	2
  Risk of infrastructure disruption	5	5	7	5	4	2	0	0
  Risk surrounding the low interest rate environment (e)	6	2	0	2	12	3	0	0
  Risk of loss of confidence in the authorities	0	3	3	4	4	2	1	0
  Risk surrounding cryptocurrencies	0	0	0	0	0	0	3	0
  Risk of lack of confidence in ratings, valuations and disclosure	1	1	0	0	1	0	0	0
  Number one source of risk to the UK financial system (f)
  Inflation risk	0	0	0	1	0	12	23	38
  Cyber attack	7	14	8	14	6	19	34	17
  Geopolitical risk	7	11	3	5	5	2	13	17
  Risk of a UK economic downturn	3	2	2	1	1	2	6	8
  Risk of an overseas/global economic downturn	1	5	2	2	5	2	0	3
  Risk of financial market disruption/dislocation	2	2	3	2	0	3	1	3
  Risks around regulation/taxes	2	5	3	0	0	3	1	3
  Risks surrounding monetary and fiscal policy	2	0	1	1	2	2	1	3
  UK political risk	67	53	74	69	79	10	1	2
  Pandemic risk	0	0	0	0	0	38	11	2
  Climate risk	0	1	1	1	1	3	0	2
  Risk of tightening in credit conditions	2	0	0	0	0	2	3	2
  Household/corporate credit risk	2	2	0	0	0	0	0	2
  Risk of financial institution failure/distress	0	1	1	0	0	2	1	0
  Other	1	1	0	0	0	0	3	0
  Risk of infrastructure disruption	0	0	0	2	0	0	0	0
  Operational risk	0	0	0	0	1	0	0	0
  Risk surrounding the low interest rate environment (e)	1	1	0	0	0	0	0	0
  Sovereign risk	1	0	0	0	0	0	0	0
  Risk of property price falls	1	1	0	0	0	0	0	0
  Risk of lack of confidence in ratings, valuations and disclosure	0	0	0	0	0	0	0	0
  Funding risk	0	0	0	0	0	0	0	0
  Risk of loss of confidence in the authorities	0	0	0	0	0	0	0	0
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	0	0
  Risk surrounding cryptocurrencies	0	0	0	0	0	0	0	0

  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-text 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. Between 2020 H1 and 2021 H1, the survey was paused due to Covid.
  • (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) 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.
  • (f) 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)}

  	2017 H2	2018 H1	2018 H2	2019 H1	2019 H2	2021 H2	2022 H1	2022 H2
  Inflation risk	0	5	1	1	3	23	46	61
  Cyber attack	45	51	55	52	48	58	65	56
  Geopolitical risk	36	37	39	35	32	32	40	48
  UK political risk	70	52	80	82	75	25	10	14
  Climate risk	0	1	1	3	4	21	15	13
  Risk of a UK economic downturn	14	12	10	6	14	7	4	13
  Risk of financial market disruption/dislocation	10	12	9	10	12	12	10	11
  Operational risk	4	7	0	0	0	9	18	11
  Risk of tightening in credit conditions	0	1	2	1	0	4	4	11
  Pandemic risk	0	0	0	0	0	40	29	9
  Risk of an overseas/global economic downturn	6	7	16	14	21	4	4	6
  Other	5	3	4	6	1	16	13	6
  Risks around regulation/taxes	15	15	7	11	8	16	6	5
  Risk of financial institution failure/distress	7	4	4	8	8	5	4	5
  Household/corporate credit risk	2	5	4	0	3	7	4	5
  Risks surrounding monetary and fiscal policy	11	15	6	1	3	4	4	3
  Risks around public anger against, or distrust of, financial institutions	0	0	0	0	0	0	1	3
  Funding risk	0	0	1	3	1	0	1	2
  Risk of property price falls	12	5	7	6	1	4	3	0
  Risk of infrastructure disruption	4	4	5	4	4	2	0	0
  Sovereign risk	5	3	5	8	0	0	0	0
  Risk surrounding the low interest rate environment (d)	2	0	0	0	5	0	0	0
  Risk of loss of confidence in the authorities	0	0	0	1	1	0	0	0
  Risk of lack of confidence in ratings, valuations and disclosure	1	1	0	0	1	0	0	0
  Risk surrounding cryptocurrencies	0	0	0	0	0	0	0	0
  Cited at least one key risk, but did not cite any risk as challenging to manage (%)	13	16	8	12	13	0	0	0
  Number of respondents citing at least one source of risk	96	87	89	81	84	58	70	65

  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-text 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. Between 2020 H1 and 2021 H1, the survey was paused due to Covid.
  • (c) Figures are expressed as nearest whole integer, so may appear inconsistent with figures shown in the text of the survey.
  • (d) 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.

• Table A4

  Risks most probable to materialise ^{(a) (b) (c)}

  	2021 H2	2022 H1	2022 H2
  Inflation risk	23	58	63
  Geopolitical risk	28	36	54
  Cyber attack	58	55	37
  Risk of UK economic downturn	9	10	20
  UK political risk	26	9	18
  Risk of an overseas economic downturn	5	3	18
  Risk of tightening in credit conditions	2	7	17
  Other	9	15	15
  Climate risk	23	10	9
  Risk of financial market disruption/dislocation	18	13	6
  Operational risk	7	10	6
  Household/corporate credit risk	5	4	5
  Risks around public anger against, or distrust of, financial institutions	0	0	5
  Risks surrounding monetary and fiscal policy	4	3	5
  Risk of financial institution failure/distress	4	1	2
  Funding risk	0	1	2
  Risk of property price falls	4	4	2
  Risk around regulation/taxes	9	4	2
  Sovereign risk	0	0	2
  Pandemic risk	46	36	2
  Risk of infrastructure disruption	0	0	0
  Risk of lack of confidence in ratings, valuations and disclosure	0	0	0
  Risk of loss of confidence in the authorities	0	1	0
  Risks surrounding the low interest rate environment (d)	2	0	0
  Risks surrounding cryptocurrencies	0	0	0
  Cited at least one key risk, but did not cite any risk as most likely to materialise (%)	0	0	0
  Number of respondents citing at least one source of risk	58	70	65

  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 were most probable to materialise. This element of the survey was introduced in 2021 H2. Answers were provided in a free-text 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. Between 2020 H1 and 2021 H1, the survey was paused due to Covid.
  • (c) Figures are expressed as nearest whole integer, so may appear inconsistent with figures shown in the text of the survey.
  • (d) 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.