A Framework for Macroprudential Bank Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs
IMF Working Papers, March 13, 2013
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- A Framework for Macroprudential Bank Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs
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Bibliographic details
- Authors: Andreas Jobst, Li L Ong, Christian Schmieder
- Published: March 13, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781616355074.001
Summary of purpose and scope
- Articulates the solvency stress testing framework applied in the IMF’s surveillance of member countries’ banking systems.
- Discusses examples of actual implementation in FSAPs to 18 countries which are in the group comprising the 25 most systemically important financial systems (“S-25”) plus other G-20 countries.
- Offers guidance for readers seeking to develop their own stress testing frameworks and for country authorities preparing for FSAPs.
Key components of the solvency stress testing framework
- Emphasis on more robust stress testing methods and models developed since the global financial crisis.
- Adoption of a more coherent and consistent approach across IMF staff work.
- Use of an IMF balance sheet approach and satellite models as part of the modeling toolkit.
- Incorporation of market price information and sensitivity analysis within stress testing designs.
- Specification of a risk horizon and consideration of macroprudential dimensions in solvency assessments.
Implementation and empirical application
- Examples drawn from 18 country FSAPs within the S-25 and other G-20 countries illustrate practical application.
- A detailed Stress Test Matrix (STeM) compares the stress test parameters applied in each of these major country FSAPs.
- Stress test output templates are provided to standardize reporting and facilitate comparability across assessments.
Outputs, templates, and analytical tools
- Provision of a detailed Stress Test Matrix (STeM) for cross-country parameter comparison.
- Inclusion of stress test output templates, including a bottom-up bank solvency stress test output template and a stress test summary template, to promote consistent presentation of results.
- Framework supports both surveillance and Financial Sector Assessment Program (FSAP) uses.
Subject coverage and keywords (as listed)
- Subjects: Bank solvency, Banking, Basel III, Financial regulation and supervision, Financial Sector Assessment Program, Financial sector policy and analysis, Solvency stress testing, Stress testing.
- Keywords: Bank solvency, bank solvency risk, Basel III, bottom-up bank solvency stress test output template, Financial Sector Assessment Plan (FSAP), Financial Sector Assessment Program, FSAP solvency stress tests, G-20, Global, hurdle rate, IMF balance sheet approach, IMF staff, IMF team, macroprudential, market price, output template, risk horizon, S-25, satellite models, sensitivity analysis, solvency, Solvency stress testing, stress test output template, stress test summary template, stress testing, surveillance, U.K. FSAP update, WP.