Portugal: Financial Sector Assessment Program: Technical Note: Stress Testing

IMF Staff Country Reports, January 30, 2007

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Canonical URL: Portugal: Financial Sector Assessment Program: Technical Note: Stress Testing

This technical note explains stress testing for Portugal’s financial sector.
A core part of the banking stress tests was the bottom-up exercise implemented by individual institutions.
The bottom-up stress tests focus only on the impact of expected losses on indicators of profitability and capitalization.
The results are presented in terms of the actual solvency levels before and after the shock, allowing for an assessment of the capacity of banks to withstand the shocks.

Primary approach: bottom-up exercise implemented by individual institutions.
Scope of bottom-up tests: only the impact of expected losses on indicators of profitability and capitalization.
Output metric: actual solvency levels reported before and after the shock.

Results are expressed as actual solvency levels before and after the shock to assess banks’ capacity to withstand shocks.
Focused outcomes: indicators of profitability and capitalization affected by expected losses.

Subject areas: Banking, Capital adequacy requirements, Credit risk, Financial regulation and supervision, Financial sector policy and analysis, Income, Market risk, National accounts, Stress testing.
Keywords preserved from the source:
- capital adequacy ratio
- Capital adequacy requirements
- CR
- Credit risk
- Equity price risk
- exchange rate risk
- foreign exchange
- Global
- Income
- interest income
- interest rate risk
- ISCR
- life lapse risk
- life lapse risk nonlife premium
- market financing
- Market risk
- market share
- net interest income
- nonlife CAT risk
- price shock
- profit and loss
- risk absorption properties
- Stress testing
- underwriting risk
- volatility risk