{
  "title": "How to Capture Macro-Financial Spillover Effects in Stress Tests?",
  "publication": "IMF Working Papers, June 12, 2014",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/how-to-capture-macro-financial-spillover-effects-in-stress-tests-41644",
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  "summary": "One of the challenges of financial stability analysis and bank stress testing is how to establish scenarios with meaningful macro-financial linkages, i.e., taking into account spillover effects and other forms of contagion.",
  "sections": [
    {
      "heading": "Authors and publication",
      "content": "- By Heiko Hesse, Ferhan Salman, Christian Schmieder\n- June 12, 2014\n- IMF Working Paper No. 2014/103\n- Volume: 2014; Issue: 103; Pages: 34\n- DOI: https://doi.org/10.5089/9781498379083.001\n- ISBN: 9781498379083\n- ISSN: 1018-5941\n- Stock No: WPIEA2014103"
    },
    {
      "heading": "Research objective and scope",
      "content": "- Address the challenge of establishing scenarios with meaningful macro-financial linkages for financial stability analysis and bank stress testing.\n- Simulate the potential impact of spillover effects based on the “traditional” design of macro-economic stress tests.\n- Examine spillover effects observed during the financial crisis and simulate their impact on banks’ liquidity and capital positions."
    },
    {
      "heading": "Key findings",
      "content": "- Spillover effects have a highly non-linear impact on bank soundness.\n- Both liquidity and solvency of banks are materially affected when spillover effects and contagion are taken into account."
    },
    {
      "heading": "Methodological approach",
      "content": "- Use simulations grounded in the “traditional” design of macro-economic stress tests to capture spillover dynamics.\n- Focus on translating observed crisis-period spillovers into impacts on bank-level liquidity and capital positions."
    },
    {
      "heading": "Thematic coverage and keywords",
      "content": "- Subject areas: Asset and liability management; Banking; Financial sector policy and analysis; Liquidity; Liquidity stress testing; Solvency; Solvency stress testing; Stress testing.\n- Keywords: bank; bank level; bank reaction; bank solvency; Contagion; Global; IMF liquidity stress; Liquidity; Liquidity stress testing; Macro-financial linkages; measures bank; Scenarios; Solvency; solvency risk; Solvency stress testing; Spillover; spillover effect; Stress testing; WP"
    },
    {
      "heading": "Practical implications and outlook",
      "content": "- Integrating macro-financial spillover effects into stress tests is critical for realistic assessment of bank liquidity and solvency under crisis scenarios.\n- The non-linear nature of spillover impacts implies that stress-test designs should account for amplifying contagion channels rather than assuming linear propagation of shocks.\n\nSource: IMF Working Paper No. 2014/103, “How to Capture Macro-Financial Spillover Effects in Stress Tests?”, Heiko Hesse, Ferhan Salman, Christian Schmieder, June 12, 2014.\n\n---\n\n Content in this bundle\n\n- wp14103\n  - wp14103 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp14103 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/how-to-capture-macro-financial-spillover-effects-in-stress-tests-41644"
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    "Authors: Heiko Hesse, Ferhan Salman, Christian Schmieder",
    "Published: June 12, 2014",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781498379083.001",
    "By Heiko Hesse, Ferhan Salman, Christian Schmieder",
    "June 12, 2014",
    "IMF Working Paper No. 2014/103",
    "Volume: 2014; Issue: 103; Pages: 34",
    "DOI: https://doi.org/10.5089/9781498379083.001",
    "ISBN: 9781498379083",
    "ISSN: 1018-5941",
    "Stock No: WPIEA2014103",
    "Address the challenge of establishing scenarios with meaningful macro-financial linkages for financial stability analysis and bank stress testing.",
    "Simulate the potential impact of spillover effects based on the “traditional” design of macro-economic stress tests.",
    "Examine spillover effects observed during the financial crisis and simulate their impact on banks’ liquidity and capital positions.",
    "Spillover effects have a highly non-linear impact on bank soundness.",
    "Both liquidity and solvency of banks are materially affected when spillover effects and contagion are taken into account.",
    "Use simulations grounded in the “traditional” design of macro-economic stress tests to capture spillover dynamics.",
    "Focus on translating observed crisis-period spillovers into impacts on bank-level liquidity and capital positions.",
    "Subject areas: Asset and liability management; Banking; Financial sector policy and analysis; Liquidity; Liquidity stress testing; Solvency; Solvency stress testing; Stress testing.",
    "Keywords: bank; bank level; bank reaction; bank solvency; Contagion; Global; IMF liquidity stress; Liquidity; Liquidity stress testing; Macro-financial linkages; measures bank; Scenarios; Solvency; solvency risk; Solvency stress testing; Spillover; spillover effect; Stress testing; WP",
    "Integrating macro-financial spillover effects into stress tests is critical for realistic assessment of bank liquidity and solvency under crisis scenarios.",
    "The non-linear nature of spillover impacts implies that stress-test designs should account for amplifying contagion channels rather than assuming linear propagation of shocks.",
    "**_wp14103**"
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