The Bank of England has published its 50th Financial Stability Paper, this time focussing on operational resilience.
The paper builds upon a Financial Stability in Focus paper published in March 2024 by the Bank’s Financial Policy Committee, which detailed its macroprudential approach to operational resilience. The new ‘Operational resilience in a macroprudential framework’ paper supplements the previous paper with further analysis and includes supporting detail and additional examples. Its purpose is ‘to further illustrate how financial stability can be impacted by the crystallisation of operational risk’. A macroprudential framework is a structural approach to financial regulation and supervision that aims to safeguard the financial system as a whole.
Conclusions from ‘Operational resilience in a macroprudential framework’ include:
- Operational incidents can impact the stability of the financial system because system-level vulnerabilities and transmission channels have the potential to amplify the impacts of initial disruption.
- The financial stability risks from operational incidents can be reduced by mitigating system-level vulnerabilities and transmission channels. Nevertheless, it is important that operational resilience is strong across each part of the financial system as firm-level resilience is an essential foundation to resilience across the system.
- Operational resilience in the financial system is a global issue and other jurisdictions are also taking action to build resilience.
- Operational resilience is a relatively new field in financial stability research, particularly when compared to research into financial resilience. Further research that considers a broad set of operational risks to financial stability through a macroprudential lens would be beneficial.
