LONDON, June 19 Reuters The Bank of England has launched its first systemwide stress test to establish how big banks, insurers, clearing houses and investment funds collectively behave during extreme stresses in markets, it said on Monday.

The BoE had said in December that investment funds and other nonbank financial institutions would face their first 39;stress test39; to apply lessons from the nearmeltdown in Britain39;s pension fund sector in September.

Liabilitydriven investment LDI funds, used by pension funds to ensure their longterm payouts, struggled to meet collateral calls after turmoil caused by the fiscal plans of Liz Truss39;s shortlived government in September. The BoE had to step in to buy government bonds to stabilise markets.

Money market funds came under dashforcash pressure during market stresses following economy lockdowns to fight COVID19.

The launch of this exercise will provide valuable insight into the systemwide dynamics for banks and nonbanks following a severe but plausible stress to financial markets, BoE Deputy Governor Jon Cunliffe said in a statement.

The BoE has long run separate stress tests of banks and insurers, but this is the first financialsystem wide test, with the bank saying results are expected some time next year.

Participants will be actively engaged in both the design and execution of the exercise that will focus on UK government bond and repo markets, sterling corporate bond markets and associated derivatives markets,…