Luxembourg: Financial Sector Assessment Program—Technical Note on Stress Testing and Systemic Risk Analysis
IMF Staff Country Reports, June 24, 2024
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Bibliographic details
- Published: June 24, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400278938.002
Overview and context
- Publication date: June 24, 2024
- Focus: technical note on Stress Testing and Systemic Risk Analysis for the Luxembourg Financial Sector Assessment Program.
- System characteristics: Luxembourg financial system is described as highly interconnected, diverse and complex.
- Risk environment: the system "has displayed a high level of resilience in the past but currently faces a backdrop of heightened economic, financial, and geopolitical uncertainty."
Scope of analysis
- Integrated stress testing across banking, insurance, and investment fund sectors.
- Stress tests incorporated "key external and domestic risks."
- Emphasis on interlinkages: increasing share of alternative investment funds and higher interlinkages both within the investment fund sector and with the rest of the financial sector.
Main findings — banking sector
- Under the adverse scenario, the banking system would experience "a significant decline in the system-wide capital ratio but would still be very well capitalized, thanks to healthy initial positions."
- Liquidity resilience: "The majority of banks would be able to sustain bank runs akin to those experienced in the US and Switzerland in March 2023, but some need attention."
- Overall assessment: "Despite resilience taken together, the assessment of banking sector vulnerabilities points to several areas where the authorities could prioritize supervisory attention."
Main findings — investment funds and insurance
- Investment fund sector: "The increasing share of alternative investment funds and the higher interlinkages both within the investment fund sector and with the rest of the financial sector call for vigilance."
- Insurance sector: included in integrated stress tests; solvency impact assessed (noted as part of integrated analysis).
Implications and priorities for authorities
- Prioritize supervisory attention to identified banking sector vulnerabilities.
- Monitor and address the growing presence and interlinkages of alternative investment funds within the financial system.
- Maintain vigilance across segments given heightened economic, financial, and geopolitical uncertainty.
Content in this bundle
- Executive Summary