Israel: Technical Note on Stress Test of the Banking, Insurance and Pension Sectors
IMF Staff Country Reports, April 12, 2012
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- Israel: Technical Note on Stress Test of the Banking, Insurance and Pension Sectors
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Bibliographic details
- Published: April 12, 2012
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781475503197.002
Overview
- Presents a technical note on the stress test of Israel’s banking, insurance, and pension sectors.
- Part of the Israel Financial Sector Assessment Program Update stress testing exercise.
- Exercise comprises a comprehensive analysis of solvency and liquidity risks of key banking and insurance institutions.
Methodology and Models
- Uses satellite models to analyze sectoral exposures and risk propagation:
- Housing and corporate credit models.
- Household nonhousing credit model.
- Profit components and profit retention behavior models.
- Haircut models of government and financial institution bonds.
- Single-factor tests conducted to estimate vulnerabilities to:
- Market risk.
- An idiosyncratic credit shock from exposures to the largest borrower groups.
- An idiosyncratic credit shock from exposures to the three largest corporate borrowers.
- Framework emphasizes a risk-adjusted balance sheet approach and market-value assessments (terminology preserved as in source: "risk-adjusted balance sheet", "market value").
Key Findings and Vulnerabilities
- Comprehensive assessment covers both solvency and liquidity risks for key banking and insurance institutions.
- Vulnerabilities explicitly tested include:
- Exposure concentrations to largest borrower groups.
- Exposure concentrations to the three largest corporate borrowers.
- Sensitivity to market risk under single-factor scenarios.
- Satellite models provide detailed channels for stress transmission through:
- Housing-sector credit dynamics.
- Corporate credit dynamics.
- Household nonhousing credit.
- Profitability components and retention behavior.
- Price and haircut adjustments on government and financial institution bonds.
Scope and Coverage
- Subject classifications included in the source: Banking, Credit, Financial institutions, Financial sector policy and analysis, Financial statements, Insurance, Insurance companies, Money, Public financial management (PFM), Stress testing.
- Keywords preserved from the source: asset return, bank, BOI interest rate, CR, Credit, credit risk, default forecast, equity return volatility, fair value, Financial statements, Global, Insurance, Insurance companies, interest rate, ISCR, market value, risk-adjusted balance sheet, risk-adjusted balance sheet framework, short interest, Stress testing.