Market-Based Structural Top-Down Stress Tests of the Banking System

Author/Editor: Jorge A. Chan-Lau
Publication Date: April 10, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Despite increased need for top-down stress tests of financial institutions, performing them is challenging owing to the absence of granular information on banks’ trading and loan portfolios. To deal with these data shortcomings, this paper presents a market-based structural top-down stress testing methodology that relies in market-based measures of a bank's probability of default and structural models of default risk to infer the capital losses they could experience in stress scenarios. As an illustration, the methodology is applied to a set of banks in an advanced emerging market economy.
Series: Working Paper No. 13/88
Subject(s): Stress testing | Banking systems | Financial institutions | Emerging markets | Financial sector | Economic models

Publication Date: April 10, 2013
ISBN/ISSN: 9781484306314/1018-5941 Format: Paper
Stock No: WPIEA2013088 Pages: 18
US$18.00 (Academic Rate:
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