Cover IMF Working Papers
Credibility and Crisis Stress Testing
Author: Ms. Li L Ong and Ceyla Pazarbasioglu
Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 178
Language:
English
Publication Date:
09 Aug 2013
DOI:
https://doi.org/10.5089/9781484395615.001
ISBN:
9781484395615
ISSN:
1018-5941
Pages:
63
Keywords:
WP; crisis stress tests; asset quality; price index; capital action; financial crisis; stock index; Asset quality review; crisis; disclosure; financial backstop; hurdle rates; liquidity risk; restructuring; solvency; transparency; CCAR; CEBS; EBA; PCAR; SCAP; EU bank; loan portfolio; loss absorption capacity; assessed bank; bank valuation; financing eurozone bank; bank result; EU capital exercise; Stress testing; Commercial banks; External balance assessment (EBA); Solvency stress testing; Liquidity stress testing; Europe; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Credibility is the bedrock of any crisis stress test. The use of stress tests to manage systemic risk was introduced by the U.S. authorities in 2009 in the form of the Supervisory Capital Assessment Program. Since then, supervisory authorities in other jurisdictions have also conducted similar exercises. In some of those cases, the design and implementation of certainelements of the framework have been criticized for their lack of credibility. This paper proposes a set of guidelines for constructing an effective crisis stress test. It combines financial markets impact studies of previous exercises with relevant case study information gleaned from those experiences to identify the key elements and to formulate their appropriate design. Pertinent concepts, issues and nuances particular to crisis stress testing are also discussed. The findings may be useful for country authorities seeking to include stress tests in their crisis management arsenal, as well as for the design of crisis programs.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund