{
  "title": "First Global Bank Stress Test Highlights Increased Financial Resilience",
  "publication": "IMF Blog, April 6, 2022",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2022/04/06/first-global-bank-stress-test-highlights-increased-financial-resilience",
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  "summary": "The Global Bank Stress Test provides a first-of-its-kind assessment of potential shocks and spillovers to the world’s banks and is a major milestone in the IMF’s ability to gauge the impact of global shocks like the pandemic.",
  "sections": [
    {
      "heading": "Overview of the Global Bank Stress Test",
      "content": "- The Global Bank Stress Test provides a first-of-its-kind assessment of potential shocks and spillovers to the world’s banks and is a major milestone in the IMF’s ability to gauge the impact of global shocks like the pandemic.\n- Originally outlined in the October 2020 Global Financial Stability Report.\n- Intended as a useful new tool for central banks and financial regulators to consider the effects of global shocks on domestic systems."
    },
    {
      "heading": "Data coverage and methodology",
      "content": "- Analysis includes a quarter century of bank-level data through 2020.\n- Sample: 257 of the largest lenders from across 24 advanced economies and five emerging markets.\n- Together, these institutions account for 70 percent of the world’s banking assets.\n- In each economy, the stress test covers as many institutions as necessary to account for at least 80 percent of assets for the individual banking systems.\n- The comprehensive global sweep addresses limitations of national-level stress tests that focus more on domestic risks and use differing data and methodologies."
    },
    {
      "heading": "Key findings and statistics",
      "content": "- Banking systems saw significant capital increases ahead of the pandemic, reflecting reforms launched after the 2008 Global Financial Crisis.\n- The Global Bank Stress Test results applied to scenarios broadly in line with the pandemic shock show an encouraging picture of resilience.\n- In the test’s adverse scenario:\n  - Global gross domestic product was about 5 percentage points lower than IMF fall 2021 baseline assumptions for 2022.\n  - Global gross domestic product was 2.5 percentage points less for 2023.\n- Banks in emerging markets face greater risks in an adverse scenario, reflecting the higher sensitivity of their core equity capital to shocks.\n- A sharper tightening in financial conditions for vulnerable businesses in emerging markets and developing economies results in a larger shock for those economies that also have a higher sensitivity of their core equity capital to shocks."
    },
    {
      "heading": "Implications, limitations, and policy guidance",
      "content": "- The results suggest that banking systems remain able to absorb shocks from adverse developments in global growth and risk premia broadly in line with those seen during the pandemic.\n- Continued close monitoring is needed, especially in emerging economies that still have pockets of vulnerability and more constrained policy space to respond to new challenges.\n- The stress test is a useful tool for central banks and financial regulators to consider cross-border spillovers and effects of global shocks on domestic systems.\n- Analysis predates the war in Ukraine and current concerns about stagflation; these developments add uncertainty to the evolution of capital levels during 2021 and the policy space to absorb new shocks."
    },
    {
      "heading": "Research contributions",
      "content": "- Research contributions to the departmental paper from Xiaodan Ding, Marco Gross, Dimitrios Laliotis, Fabian Lipinsky, Pavel Lukyantsau, and Thierry Tressel are reflected in the blog.\n\nSource: First Global Bank Stress Test Highlights Increased Financial Resilience — Tobias Adrian, Vikram Haksar, Ivo Krznar; April 6, 2022 (IMF Blog).\n\n---\n\n\n References\n\n- October 2020 Global Financial Stability Report\n- Departmental Paper\n- https://www.imf.org/wp-content/uploads/2022/04/Stress-Testing-Blog-Charts-01.png\n- https://www.imf.org/wp-content/uploads/2022/04/Stress-Testing-Blog-Charts-02.png\n\nSource: https://www.imf.org/en/blogs/articles/2022/04/06/first-global-bank-stress-test-highlights-increased-financial-resilience"
    }
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    "Authors: Tobias Adrian, Vikram Haksar, Ivo Krznar",
    "Published: April 6, 2022",
    "The Global Bank Stress Test provides a first-of-its-kind assessment of potential shocks and spillovers to the world’s banks and is a major milestone in the IMF’s ability to gauge the impact of global shocks like the pandemic.",
    "Originally outlined in the October 2020 Global Financial Stability Report.",
    "Intended as a useful new tool for central banks and financial regulators to consider the effects of global shocks on domestic systems.",
    "Analysis includes a quarter century of bank-level data through 2020.",
    "Sample: 257 of the largest lenders from across 24 advanced economies and five emerging markets.",
    "Together, these institutions account for 70 percent of the world’s banking assets.",
    "In each economy, the stress test covers as many institutions as necessary to account for at least 80 percent of assets for the individual banking systems.",
    "The comprehensive global sweep addresses limitations of national-level stress tests that focus more on domestic risks and use differing data and methodologies.",
    "Banking systems saw significant capital increases ahead of the pandemic, reflecting reforms launched after the 2008 Global Financial Crisis.",
    "The Global Bank Stress Test results applied to scenarios broadly in line with the pandemic shock show an encouraging picture of resilience.",
    "In the test’s adverse scenario:",
    "Banks in emerging markets face greater risks in an adverse scenario, reflecting the higher sensitivity of their core equity capital to shocks.",
    "A sharper tightening in financial conditions for vulnerable businesses in emerging markets and developing economies results in a larger shock for those economies that also have a higher sensitivity of their core equity capital to shocks.",
    "The results suggest that banking systems remain able to absorb shocks from adverse developments in global growth and risk premia broadly in line with those seen during the pandemic.",
    "Continued close monitoring is needed, especially in emerging economies that still have pockets of vulnerability and more constrained policy space to respond to new challenges.",
    "The stress test is a useful tool for central banks and financial regulators to consider cross-border spillovers and effects of global shocks on domestic systems.",
    "Analysis predates the war in Ukraine and current concerns about stagflation; these developments add uncertainty to the evolution of capital levels during 2021 and the policy space to absorb new shocks.",
    "Research contributions to the departmental paper from Xiaodan Ding, Marco Gross, Dimitrios Laliotis, Fabian Lipinsky, Pavel Lukyantsau, and Thierry Tressel are reflected in the blog.",
    "[October 2020 Global Financial Stability Report](https://www.imf.org/en/Publications/GFSR/Issues/2020/10/13/global-financial-stability-report-october-2020)",
    "[Departmental Paper](https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2022/04/04/The-Global-Bank-Stress-Test-513818)",
    "[https://www.imf.org/wp-content/uploads/2022/04/Stress-Testing-Blog-Charts-01.png](https://www.imf.org/wp-content/uploads/2022/04/Stress-Testing-Blog-Charts-01.png)",
    "[https://www.imf.org/wp-content/uploads/2022/04/Stress-Testing-Blog-Charts-02.png](https://www.imf.org/wp-content/uploads/2022/04/Stress-Testing-Blog-Charts-02.png)"
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