{
  "title": "Market-Based Structural Top-Down Stress Tests of the Banking System",
  "publication": "IMF Working Papers, April 10, 2013",
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  "summary": "Despite increased need for top-down stress tests of financial institutions, performing them is challenging owing to the absence of granular information on banks’ trading and loan portfolios.",
  "sections": [
    {
      "heading": "Overview and motivation",
      "content": "- Top-down stress tests are increasingly needed for assessing financial institutions.\n- Performing top-down stress tests is challenging because of the absence of granular information on banks’ trading and loan portfolios.\n- The paper presents a market-based structural top-down stress testing methodology that addresses these data shortcomings by relying on market-based measures and structural default models."
    },
    {
      "heading": "Methodology",
      "content": "- Relies on market-based measures of a bank's probability of default.\n- Uses structural models of default risk to infer capital losses that banks could experience under stress scenarios.\n- The methodology allows inference of capital losses without requiring granular portfolio-level data."
    },
    {
      "heading": "Application and illustration",
      "content": "- The methodology is applied to a set of banks in an advanced emerging market economy (illustration described in the paper)."
    },
    {
      "heading": "Key findings and contributions",
      "content": "- Demonstrates a feasible approach to top-down stress testing when granular portfolio data are unavailable.\n- Shows how market prices and market-based probability of default measures can be mapped into estimated capital losses via structural default models.\n- Provides a practical framework for regulators and analysts to perform system-wide stress assessments using market information."
    },
    {
      "heading": "Subjects and thematic coverage",
      "content": "- Banking\n- Capital adequacy requirements\n- Debt default\n- External debt\n- Financial regulation and supervision\n- Financial sector policy and analysis\n- Stress testing"
    },
    {
      "heading": "Keywords (as provided)",
      "content": "- bank, bank analyst, banks, banks in the sample, banks' projection, Capital adequacy requirements, capital plans bank, Debt default, default, default risk, Global, IMF-World Bank FSAP, market, market estimate, market prices, market risk factors, probability of default, result, stress test methodology, Stress testing, Stress tests, structural models, systemic risk, WP\n\n---\n\n Content in this bundle\n\n- wp1388\n  - wp1388 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1388 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/market-based-structural-top-down-stress-tests-of-the-banking-system-40468"
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    "Authors: Jorge A Chan-Lau",
    "Published: April 10, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484306314.001",
    "Top-down stress tests are increasingly needed for assessing financial institutions.",
    "Performing top-down stress tests is challenging because of the absence of granular information on banks’ trading and loan portfolios.",
    "The paper presents a market-based structural top-down stress testing methodology that addresses these data shortcomings by relying on market-based measures and structural default models.",
    "Relies on market-based measures of a bank's probability of default.",
    "Uses structural models of default risk to infer capital losses that banks could experience under stress scenarios.",
    "The methodology allows inference of capital losses without requiring granular portfolio-level data.",
    "The methodology is applied to a set of banks in an advanced emerging market economy (illustration described in the paper).",
    "Demonstrates a feasible approach to top-down stress testing when granular portfolio data are unavailable.",
    "Shows how market prices and market-based probability of default measures can be mapped into estimated capital losses via structural default models.",
    "Provides a practical framework for regulators and analysts to perform system-wide stress assessments using market information.",
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    "External debt",
    "Financial regulation and supervision",
    "Financial sector policy and analysis",
    "Stress testing",
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