Introduction to Applied Stress Testing

Author/Editor:

Martin Cihak

Publication Date:

March 1, 2007

Electronic Access:

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Link to data for this title

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:

Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.

Series:

Working Paper No. 07/59

Subject:

Frequency:

Quarterly

English

Publication Date:

March 1, 2007

ISBN/ISSN:

9781451866230/1018-5941

Stock No:

WPIEA2007059

Format:

Paper

Pages:

74

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