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The Reserve Bank’s philosophy and approach to stress testing

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Stress tests play an important role in the Reserve Bank’s supervision of the banking system. Firstly, stress tests improve understanding of the implications of current and emerging risks to financial stability. Secondly, stress tests help assess the resilience of participating banks to severe but plausible scenarios. Results provide one lens on capital adequacy rather than a final conclusion, reflecting the uncertainty around how stress scenarios would play out and the level of capital required to maintain market confidence. Finally, supervisory tests make a significant contribution to the development of risk management capability at participating banks.

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  • Ashley Dunstan, 2018. "The Reserve Bank’s philosophy and approach to stress testing," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 81, pages 1-13, July.
    • Handle: RePEc:nzb:nzbbul:jul2018:8
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    File URL: https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2018/2018jul81-08.pdf
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    File URL: https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2018/2018jul81-09.pdf
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    1. Ashley Dunstan, 2016. "Summary of the dairy portfolio stress testing exercise," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 79, pages 1-10, March.
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    1. Bank for International Settlements, 2020. "Stress testing in Latin America: A comparison of approaches and methodologies," BIS Papers, Bank for International Settlements, number 108.

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