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Stress Testing Financial Systems

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  • Paul Louis Ceriel Hilbers
  • Matthew T. Jones
  • Graham L. Slack
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    Abstract

    Stress testing is becoming a widely used tool to assess potential vulnerabilities in a financial system. This paper is intended to answer some of the basic questions that may arise as part of the process of stress testing. The paper begins with a discussion of stress testing in a financial system context, highlighting some of the differences between stress tests of systems and of individual portfolios. The paper provides an overview of the process itself, from identifying vulnerabilities, to constructing scenarios, to interpreting the results. The experience of the IMF in conducting stress testing as part of the Financial Sector Assessment Program (FSAP) is also discussed.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/127.

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    Length: 38
    Date of creation: 01 Jul 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/127

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    Related research

    Keywords: Stress testing; Financial soundness indicators; Financial systems; Financial Sector Assessment Program; financial system; credit; financial institutions; prices; financial stability; financial sector; confidentiality; systemic risk; financial markets; payments; financial intermediation; counterparty; interest rate risk; shares; financial derivatives; collateral; amortization; cash flows; financial market; stock market indices; derivatives trading; interest coverage ratio; shareholders; protocols; domestic financial system; derivative markets; currency mismatch; bond rate; financial vulnerabilities; derivative; stock market; debt stocks; financial instability; financial statements; debt stock; financial deregulation; current account; financial instruments; international reserves; deposit rates; equity market; financial corporations; payment system; financial conglomerates; bond;

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    Citations

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    Cited by:
    1. Breuer, Thomas & Csiszár, Imre, 2013. "Systematic stress tests with entropic plausibility constraints," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1552-1559.
    2. Sebastiano Laviola & Juri Marcucci & Mario Quagliariello, 2006. "Stress testing credit risk: experience from the italian FSAP," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 269-291.
    3. Antonella Foglia, 2009. "Stress Testing Credit Risk: A Survey of Authorities' Aproaches," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 9-45, September.
    4. Carlo Gola & Francesco Spadafora, 2009. "Financial Sector Surveillance and the IMF," IMF Working Papers 09/247, International Monetary Fund.
    5. Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers 119, Netherlands Central Bank, Research Department.
    6. Abdelaziz Rouabah & John Theal, 2010. "Stress testing: The impact of shocks on the capital needs of the Luxembourg banking sector," BCL working papers 47, Central Bank of Luxembourg.
    7. Martin Èihák, 2005. "Stress Testing of Banking Systems (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(9-10), pages 418-440, September.
    8. Markus K. Brunnermeier & Gary Gorton & Arvind Krishnamurthy, 2012. "Risk Topography," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 149 - 176.
      • Markus K. Brunnermeier & Gary Gorton & Arvind Krishnamurthy, 2011. "Risk Topography," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 149-176 National Bureau of Economic Research, Inc.
    9. De Bandt, O. & Bruneau, C. & El Amri, W., 2008. "Stress Testing and Corporate Finance," Working papers 203, Banque de France.
    10. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
    11. Mark Swinburne & Stéphanie Marie Stolz & Marina Moretti, 2008. "Stress Testing At the IMF," IMF Working Papers 08/206, International Monetary Fund.
    12. Michael Boss & Gerald Krenn & Claus Puhr & Markus Schwaiger, 2007. "Stress Testing the Exposure of Austrian Banks in Central and Eastern Europe," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 13.

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