Macrofinancial Stress Testing - Principles and Practices

Policy Papers, August 22, 2012

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Macrofinancial Stress Testing - Principles and Practices

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Bibliographic details

• Published: August 22, 2012
• Series: Policy Papers

Summary

• The recent financial crisis drew unprecedented attention to the stress testing of financial institutions.
• Stress tests were criticized for having missed many of the vulnerabilities that led to the crisis, and were later used as crisis management tools to guide bank recapitalization and help restore confidence.
• The debate intensified around models, underlying assumptions, and uses of stress tests.
• Current stress testing practices are not based on a systematic and comprehensive set of principles but have emerged from trial-and-error and often reflect constraints in human, technical, and data capabilities.

Key topics and findings

• Role of stress tests:
  • Criticized for failing to detect crisis vulnerabilities.
  • Adopted post-crisis for bank recapitalization and confidence restoration.
• Practice characteristics:
  • Emergent practices rather than principle-based.
  • Trial-and-error development.
  • Constrained by human, technical, and data capabilities.
• Subject areas covered:
  • Bank supervision
  • Financial institutions
  • Liquidity
  • Risk management
  • Stress testing

Content in this bundle

• Macrofinancial Stress Testing—Principles and Practices; IMF Policy Papers; August 22, 2012
  • Macrofinancial Stress Testing—Principles and Practices; IMF Policy Papers; August 22, 2012 (Markdown version)
  • Macrofinancial Stress Testing—Principles and Practices; IMF Policy Papers; August 22, 2012 (PDF)