Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.
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Paper provided by International Monetary Fund in its series IMF Working Papers with number
07/59.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Glenn Hoggarth & Andrew Logan & Lea Zicchino, 2005.
"Macro stress tests of UK banks,"
BIS Papers chapters,
in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 392-408
Bank for International Settlements.
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