Credibility and Crisis Stress Testing
IMF Working Papers, August 9, 2013
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Bibliographic details
- Authors: Li L Ong, Ceyla Pazarbasioglu
- Published: August 9, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484395615.001
Overview and Purpose
- Authors: Li L Ong, Ceyla Pazarbasioglu
- Date: August 9, 2013
- Series: Working Paper No. 2013/178
- Issue: 178; Volume: 2013; Pages: 63
- DOI: https://doi.org/10.5089/9781484395615.001
- ISBN: 9781484395615; ISSN: 1018-5941
- Summary premise: Credibility is the bedrock of any crisis stress test. The paper proposes a set of guidelines for constructing an effective crisis stress test by combining financial markets impact studies of previous exercises with relevant case study information to identify key elements and formulate appropriate design. Pertinent concepts, issues and nuances particular to crisis stress testing are discussed.
Key findings and analysis
- Historical context:
- 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 2009, supervisory authorities in other jurisdictions have conducted similar exercises.
- Credibility issues:
- Design and implementation of certain elements of some exercises have been criticized for lack of credibility.
- Methodology and evidence:
- Combines financial markets impact studies of previous exercises with case study information gleaned from those experiences.
- Identifies key elements of crisis stress testing and formulates appropriate design based on empirical and case-based evidence.
- Applicability:
- Findings are useful for country authorities seeking to include stress tests in their crisis management arsenal and for the design of crisis programs.
Subjects, scope, and technical topics covered
- Subject areas: 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 (selected, as presented): 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
Policy recommendations and guidelines (as emphasized)
- Prioritize credible design and implementation to ensure market and stakeholder confidence in crisis stress tests.
- Use a combination of financial markets impact analysis and detailed case study evidence to identify which framework elements are most effective and credible.
- Address design nuances specific to crisis stress testing, including transparency, disclosure, and the interaction of liquidity and solvency assessments.
- Integrate stress testing into broader crisis management arsenals and crisis program design for country authorities.
Publication and access notes
- Publication type: IMF Working Papers
- Format options noted on the page: Download PDF; More Formats on IMF eLibrary; Order a Print Copy; Create Citation
- Citation example provided on the page: Li L Ong, and Ceyla Pazarbasioglu. "Credibility and Crisis Stress Testing", IMF Working Papers 2013, 178 (2013), accessed 9/17/2026, https://doi.org/10.5089/9781484395615.001
Source: IMF Working Paper "Credibility and Crisis Stress Testing" by Li L Ong and Ceyla Pazarbasioglu, Working Paper No. 2013/178.