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

April 10, 2013

Preview Citation

Format: Chicago

Jorge A Chan-Lau. Market-Based Structural Top-Down Stress Tests of the Banking System, (USA: International Monetary Fund, 2013) accessed September 19, 2024

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.

Subject: Banking, Capital adequacy requirements, Debt default, External debt, Financial regulation and supervision, Financial sector policy and analysis, Stress testing

Keywords: Bank, Bank analyst, Banks, Banks in the sample, Banks' projection, Capital adequacy requirements, Capital plans bank, Debt default, Default, Default risk, Global, IMF-World Bank FSAP, Market, Market estimate, Market prices, Market risk factors, Probability of default, Result, Stress test methodology, Stress testing, Stress tests, Structural models, Systemic risk, WP

Publication Details

Pages:

18
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/088
Stock No:

WPIEA2013088
ISBN:

9781484306314
ISSN:

1018-5941

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