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Capital Adequacy Pre‐ and Postcrisis and the Role of Stress Testing

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  • TIL SCHUERMANN

Abstract

The financial crisis forced the development of new approaches for determining capital adequacy in banks since extant methods clearly did not prepare banks or their supervisors sufficiently. The success of stress testing as a crisis response tool, particularly in the U.S. in 2009, has led to its adoption postcrisis as the tool of choice for assessing capital adequacy in banks and testing resiliency to economic and financial shocks. But the increased reliance on stress testing in financial peacetime has given rise to a new risk concentration, namely, in the rather narrow set of scenarios and their translation to outcomes and impact on bank financials.

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  • Til Schuermann, 2020. "Capital Adequacy Pre‐ and Postcrisis and the Role of Stress Testing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(S1), pages 87-105, October.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:s1:p:87-105
    DOI: 10.1111/jmcb.12735
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    Cited by:

    1. Małgorzata Iwanicz-Drozdowska & Krzysztof Jackowicz & Maciej Karczmarczyk, 2021. "“The Crooked Smile of TCR†: Banks’ Solvency and Restructuring Costs in the European Banking Industry," SAGE Open, , vol. 11(3), pages 21582440211, September.
    2. Paul Glasserman & Mike Li, 2022. "Should Bank Stress Tests Be Fair?," Papers 2207.13319, arXiv.org, revised May 2023.
    3. Iwanicz-Drozdowska, Małgorzata & Witkowski, Bartosz, 2022. "Regulation and supervision of the European banking industry. Does one size fit all?," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 113-129.
    4. Chen, Jiakai, 2022. "Market discipline and regulatory arbitrage: Evidence from ABCP liquidity guarantors," Journal of Banking & Finance, Elsevier, vol. 145(C).

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