Research published by the Bank of England sets out the “foundations” of a “system-wide stress test” linking banks and non-banks through various contagion channels.

Doyne Farmer, Alissa Kleinnijenhuis, Paul Nahai-Williamson and Thom Wetzer note most stress tests are micro-prudential and examine the safety of individual institutions. Macro-prudential stress testing remains in its “infancy”, they say, and research to date has typically focused on modelling representative institutions.

By contrast