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Macroprudential Supervision And Agents’ Information: What Stress Tests Really Tell The Markets

Author

Listed:
  • FAUSTO PACICCO

    (School of Economics and Management, LIUC - Università Carlo Cattaneo, Corso Matteotti 22, 21053 Castellanza(VA), Italy)

  • LUIGI VENA

    (School of Economics and Management, LIUC - Università Carlo Cattaneo, Corso Matteotti 22, 21053 Castellanza(VA), Italy)

  • ANDREA VENEGONI

    (School of Economics and Management, LIUC - Università Carlo Cattaneo, Corso Matteotti 22, 21053 Castellanza(VA), Italy)

Abstract

Central bank’s macroprudential supervisory activities have to fulfill three distinct tasks: (i) assessing the banking system’s vulnerability to exogenous adverse turbulence, (ii) evaluating the risk of systemic crisis originating from idiosyncratic shocks, and (iii) measuring financial market’s sensitivity to policy stimuli. Given that macroprudential stress tests are the centerpiece of this policy approach, it is important to establish whether they are up to the task. We study how the 2011–2018 European Banking Authority stress tests affected market risk perception and show that they provided agents with valuable information on the policy stances and the vulnerabilities of the banking system, carrying out the above tasks successfully, especially the second and third tasks.

Suggested Citation

  • Fausto Pacicco & Luigi Vena & Andrea Venegoni, 2021. "Macroprudential Supervision And Agents’ Information: What Stress Tests Really Tell The Markets," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-32, December.
    • Handle: RePEc:wsi:jfmmix:v:09:y:2021:i:02:n:s2282717x21500092
    DOI: 10.1142/S2282717X21500092
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