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The bosses of the central banks and treasuries of the UK, US and EU are to take part in a war game in Washington on Saturday to test how they would handle the collapse of a globally significant bank.
Amid growing unease over the risks to global financial stability, the most senior officials from the US Federal Reserve, the European Central Bank and the Bank of England – including its governor, Andrew Bailey – are expected to take part.
In a so-called “desktop” stress test, behind closed doors in the US capital, the exercise will include the authorities wargaming how they would respond to another Lehman Brothers-style collapse.
It comes as banking regulators from around the world sound the alarm over the growing risks to financial stability from AI, risky private credit lending, and potential disruption in markets linked to the US-Israel war on Iran.
Finance ministers, executives and regulators discussed the potential risks as they gathered in Washington for the International Monetary Fund and World Bank spring meetings this week, including warning that the latest AI models from US tech companies could pose serious threats to financial stability.
It comes amid fears over the capabilities of the US tech company Anthropic’s Mythos AI model, which experts warned last week posed an unprecedented risk because of its ability to expose flaws in IT systems.
Bailey, who also chairs the Financial Stability Board of global regulators, said such risks could threaten banks. “It is a very serious challenge for all of us. It reminds us how fast the AI world moves,” he said.
It is expected that the senior officials from the US, UK and EU will stay on in Washington after the end of the IMF meetings for the wargaming exercise, which is to be held at the offices of the Federal Deposit Insurance Commission (FDIC) – the organisation that guarantees US bank deposits.
The FDIC, which called the event a “trilateral principal level exercise,” said the meeting would be used to coordinate how multiple regulators would respond to the collapse of a global bank. It did not disclose the details of its stress-test, or if it included an assessment of cyber risks.
“These exercises enhance understanding of each jurisdiction’s resolution regime for global systemically important banks (G-SIBs), strengthen coordination on cross-border resolution, and promote confidence in and commitment to the orderly resolution of G-SIBs,” the FDIC said in a statement.
Since the collapse of Lehman Brothers in the 2008 financial crisis, such stress-testing exercises have become commonplace among regulators, with the aim to prevent a repeat of a major bank failure.
The weekend after the IMF meetings is also often used because central bank chiefs and finance ministers are already gathered together, affording them a rare opportunity to run a face-to-face exercise involving the bosses of each institution.
