Credibility and Crisis Stress Testing

August 9, 2013

Preview Citation

Format: Chicago

Li L Ong, and Ceyla Pazarbasioglu. Credibility and Crisis Stress Testing, (USA: International Monetary Fund, 2013) accessed September 18, 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

Credibility is the bedrock of any crisis stress test. The use of stress tests to manage systemic risk was introduced by the U.S. authorities in 2009 in the form of the Supervisory Capital Assessment Program. Since then, supervisory authorities in other jurisdictions have also conducted similar exercises. In some of those cases, the design and implementation of certainelements of the framework have been criticized for their lack of credibility. This paper proposes a set of guidelines for constructing an effective crisis stress test. It combines financial markets impact studies of previous exercises with relevant case study information gleaned from those experiences to identify the key elements and to formulate their appropriate design. Pertinent concepts, issues and nuances particular to crisis stress testing are also discussed. The findings may be useful for country authorities seeking to include stress tests in their crisis management arsenal, as well as for the design of crisis programs.

Subject: Banking, Commercial banks, External balance assessment (EBA), External position, Financial institutions, Financial sector policy and analysis, Liquidity stress testing, Solvency stress testing, Stress testing

Keywords: Assessed bank, Asset quality, Asset quality review, Bank result, Bank valuation, Capital action, CCAR, CEBS, Commercial banks, Crisis, Crisis stress tests, Disclosure, EBA, EU bank, EU capital exercise, Europe, External balance assessment (EBA), Financial backstop, Financial crisis, Financing eurozone bank, Global, Hurdle rates, Liquidity risk, Liquidity stress testing, Loan portfolio, Loss absorption capacity, PCAR, Price index, Restructuring, SCAP, Solvency, Solvency stress testing, Stock index, Stress testing, Transparency, WP

Publication Details

Pages:

63
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/178
Stock No:

WPIEA2013178
ISBN:

9781484395615
ISSN:

1018-5941

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