include examples of both domestic and international shocks, affecting banks, non - banks and capital markets. wherever possible these are based on the scenarios used by the bank ’ s supervisors in their work with industry, but with typically higher severity : consistent with the assumption that firms should be capable of surviving supervisory stress tests using their own resources. it is only when firms ’ liquidity needs go beyond the level that could reasonably be covered by their own resources that the central bank is called upon to act in size : the image of the firefighter in action once again. so what do we do with the results of this work? in the private sector, of course, stress tests are used to inform desired capital levels, and that is certainly something we consider too. but they can also have a wider influence, as we found last year when we ran an exercise to evaluate the potential implications of uncertainty surround different possible outcomes of the uk referendum on membership of the european union. the results of that work helped to inform judgments on collateral pre - positioning and haircuts, engagement with fellow central banks, and our own supervisory actions and conversations. most importantly of all, it confirmed that the bank had sufficient lending capacity in place to meet an extremely severe liquidity shock, see for instance : http : / / www. bankofengland. co. uk / publications / documents / speeches / 2017 / speech960. pdf. all speeches are available online at www. bankofengland. co. uk / speeches which allowed the bank to make reassuring statements about its readiness to act. in the event no such shock occurred. but the bank ’ s preparedness played a part in that. just as we expect firms to be ready for the unexpected, we hold ourselves to the same standard. indeed this exercise drove home an important broader point : for central banks to be effective watchmen ( all the time ) and firefighters ( occasionally ), we first need private sector risk managers to have drawn up ( and shared with us ) their own fire precaution and exit route plans. without a good understanding of firms ’ potential liquidity needs under stress, their alternative sources of liquidity and available collateral we cannot fully evaluate our own capacity to lend. this sort of liquidity planning under stress is i know an increasing focus for both banks and non - banks alike, and is something we would actively encourage. ( iii ) calibrating the bank ’ s own capital i mentioned at the start of my remarks that central bank capital is

. pdf. not including unrealised mark to market profits. data available in appendix a of https : / / www. ons. gov. uk / economy / governmentpublicsectorandtaxes / publicsectorfinance / bulletins / publicsectorfinances / jan2017. see http : / / www. bankofengland. co. uk / publications / documents / annualreport / 2016 / boereport. pdf and http : / / www. bankofengland. co. uk / publications / documents / other / markets / apf / boeapfannualreport1606. pdf. all speeches are available online at www. bankofengland. co. uk / speeches ( ii ) forward looking stress tests of the bank ’ s financial exposures if the first case study illustrated an example where risk was already being actively evaluated, my second illustrates a completely new area of activity. the concept of enterprise - wide stress tests has transformed private sector thinking on risk management in recent years, driven in many cases by central bank regulators. the bank of england conducts an extensive annual supervisory stress testing programme in the united kingdom – and i note with interest the discussions taking place elsewhere in this conference on the potential to expand such exercises well beyond banks, something we have also been considering. but, ironically perhaps, the bank of england has not until very recently applied such techniques to its own balance sheet. that made sense when large - scale balance sheet expansions were expected to be rare and highly idiosyncratic. but the more permanent shift in the bank ’ s firefighter role illustrated in chart 5 suggests we need a more sophisticated, agile forward - looking way of evaluating the risks we might face, and ( importantly ) the resources required to deal with them. development of a suite of stress tests has therefore been a core part of the early work of the new second line team. to shape this work, key judgments are required on ‘ the 3 ‘ s ’ s ’ : scope, scenarios and severity. scope describes the range of facilities that the bank might be called upon to use. this is a challenging judgment for an organisation specialising in tail risk insurance, and with a broad policy remit – but initially we have focused on the public commitments to provide market - wide and firm - specific liquidity insurance through the bank ’ s current set of facilities and operations. the scenarios we have so far explored are also consistent with this scope, and