Stress Testing Financial Systems: What to Do When the Governor Calls
IMF Working Papers, July 1, 2004
Source details
- Canonical URL
- Stress Testing Financial Systems: What to Do When the Governor Calls
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Bibliographic details
- Authors: Paul Louis Ceriel Hilbers, Matthew T Jones, Graham L Slack
- Published: July 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451855012.001
Overview and purpose
- Stress testing is presented as a widely used tool to assess potential vulnerabilities in a financial system.
- The paper aims to answer basic questions that arise in the stress-testing process.
- Distinction emphasized between stress tests of systems and stress tests of individual portfolios.
Process and methodology
- The paper provides an overview of the stress-testing process, covering:
- Identifying vulnerabilities.
- Constructing scenarios.
- Interpreting results.
- The approach is framed as an iterative process (term used in Keywords).
IMF experience and application
- The paper discusses the experience of the IMF in conducting stress testing as part of the Financial Sector Assessment Program (FSAP).
- The FSAP context links stress testing to Financial Sector Assessment Program objectives and financial sector policy and analysis.
Key themes and technical terms (as presented)
- Subjects: Banking; Financial Sector Assessment Program; Financial sector policy and analysis; Financial soundness indicators; Financial statements; National accounts; Personal income; Public financial management (PFM); Stress testing.
- Keywords (selected from source): bank; bank balance; C. balance-sheet implementation; estimation procedure; financial institution; Financial Sector Assessment Program; financial soundness indicators; Financial statements; financial system context; financial system structure; foreign currency; Global; income statements; insurance company balance sheets; iterative process; Personal income; price level; process; return on equity; risk management system; Stress testing; system level; system stress tests; WP.
Main takeaways (concise)
- Stress testing at the system level requires different considerations than portfolio-level tests.
- A systematic process—vulnerability identification, scenario construction, result interpretation—is central to meaningful stress-testing exercises.
- Incorporating IMF FSAP experience can inform methodologies and practical implementation for country-level assessments.