Bank’s first stress test of industry assesses how it would react in short and sharp shock affecting markets

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Hedge funds, pension funds and other companies in the shadow banking sector are at risk of amplifying market shocks and triggering a £17bn asset sell-off, according to the Bank of England’s first ever stress test into the largely unregulated industry.

The landmark exercise, the first in the world by a central bank, tracked how non-bank financial institutions – often referred to as the shadow banking sector – would react in a short and sharp shock affecting financial markets.