Chapter 3. Stress Tester: A Toolkit for Bank-by-Bank Analysis with Accounting Data
Author:
Mr. Martin Cihak
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https://orcid.org/0000-0002-3571-9707
Language:
English
Print Publication Date:
23 Dec 2014
Keywords:
BOOK; IMF staff; balance sheet; BNP Paribas; credit growth; shortfall exercise; Stress testing; Loans; Credit risk; Nonperforming loans; Commercial banks; Global; Europe; Eastern Europe; Southern Europe; Africa

Abstract

Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This chapter aims to help demystify stress tests and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk, and contagion risk and are guided in the design of stress testing scenarios. The chapter also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early-warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.

Contributor Notes

This chapter is an abridged and updated version of IMF Working Paper 07/59 (Čihák, 2007a). The author would like to thank R. Sean Craig, Dale Gray, Plamen Iossifov, Peter Chunnan Liao, Thomas Lutton, Christiane Nickel, Nada Oulidi, Richard Podpiera, Leah Sahely, Graham Slack, and participants in a regional conference on financial stability issues at Sinaia, Romania, and in seminars at the IMF, the World Bank, the Central Bank of Russia, and the Central Bank of Trinidad and Tobago for helpful comments on the working paper; Matthew Jones and Miguel Segoviano for insights on stress testing methodologies; and Roland Straub for help with the overview of stress tests.
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Cover A Guide to IMF Stress Testing
A Guide to IMF Stress Testing
Methods and Models
Author:
Ms. Li L Ong
ISBN:
9781484368589
Publication Date:
23 Dec 2014
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781484368589.071
Pages:
612
Front Matter
Chapter 1. Stress Testing at the International Monetary Fund: Methods and Models
Part I: The Accounting-Based Approach
Section A. The Balance Sheet–Based Approach
Chapter 2. Introduction to the Balance Sheet–Based Approach to Stress Testing
Chapter 4. Into the Great Unknown: Stress Testing with Weak Data
Chapter 5. Next-Generation Applied Solvency Stress Testing
Chapter 6. Of Runes and Sagas: Perspectives on Liquidity Stress Testing Using an Iceland Example
Chapter 7. Next-Generation Systemwide Liquidity Stress Testing
Chapter 8. Systemic Bank Risk in Brazil: A Comprehensive Simulation of Correlated Market, Credit, Sovereign, and Interbank Risks
Chapter 9. Modeling Correlated Systemic Bank Liquidity Risks
Chapter 10. Review and Implementation of Credit Risk Models
Chapter 11. Bankers without Borders? Implications of Ring-Fencing for European Cross-Border Banks
Chapter 12. Conducting Stress Tests of Defined Benefit Pension Plans
Section B. The Network Analysis Approach
Part II: The Market Price-Based Approach
Section A. The Equity Indicators–Based Approach
Section B. The Extreme Value Theory Approach
Section C. The Contingent Claims Analysis Approach
Part III: The Macro-Financial Approach
Back Matter