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A Framework for Macroprudential Bank Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs

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Listed:
  • Andreas Jobst
  • Ms. Li L Ong
  • Mr. Christian Schmieder

Abstract

The global financial crisis has placed the spotlight squarely on bank stress tests. Stress tests conducted in the lead-up to the crisis, including those by IMF staff, were not always able to identify the right risks and vulnerabilities. Since then, IMF staff has developed more robust stress testing methods and models and adopted a more coherent and consistent approach. This paper articulates the solvency stress testing framework that is being applied in the IMF’s surveillance of member countries’ banking systems, and discusses examples of its actual implementation in FSAPs to 18 countries which are in the group comprising the 25 most systemically important financial systems (“S-25”) plus other G-20 countries. In doing so, the paper also offers useful guidance for readers seeking to develop their own stress testing frameworks and country authorities preparing for FSAPs. A detailed Stress Test Matrix (STeM) comparing the stress test parameters applie in each of these major country FSAPs is provided, together with our stress test output templates.

Suggested Citation

  • Andreas Jobst & Ms. Li L Ong & Mr. Christian Schmieder, 2013. "A Framework for Macroprudential Bank Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs," IMF Working Papers 2013/068, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2013/068
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    References listed on IDEAS

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    Cited by:

    1. George Papadopoulos & Savas Papadopoulos & Thomas Sager, 2016. "Credit risk stress testing for EU15 banks: a model combination approach," Working Papers 203, Bank of Greece.
    2. Kuo-Wei Hsiao & Zhengyi Jiang, 2015. "The Pre- and Post-Crisis Stress Testing in the Banking Sector — A Literature Review," Global Credit Review (GCR), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 77-97.
    3. Tente, Natalia & von Westernhagen, Natalja & Slopek, Ulf, 2017. "M-PRESS-CreditRisk: A holistic micro- and macroprudential approach to capital requirements," Discussion Papers 15/2017, Deutsche Bundesbank.
    4. William F. Bassett & David E. Rappoport, 2022. "Enhancing Stress Tests by Adding Macroprudential Elements," Finance and Economics Discussion Series 2022-022, Board of Governors of the Federal Reserve System (U.S.).
    5. Mr. Daniel C Hardy & Mr. Christian Schmieder, 2013. "Rules of Thumb for Bank Solvency Stress Testing," IMF Working Papers 2013/232, International Monetary Fund.
    6. Juan-Francisco Martínez & Rodrigo Cifuentes & Juan Sebastián Becerra, 2017. "Pruebas de Tensión Bancaria del Banco Central de Chile: Actualización," Working Papers Central Bank of Chile 801, Central Bank of Chile.
    7. Andreas Jobst & Ms. Hiroko Oura, 2019. "Sovereign Risk in Macroprudential Solvency Stress Testing," IMF Working Papers 2019/266, International Monetary Fund.
    8. Ventsislav Hristev, 2014. "Bank Stress-Testing Lessons from Central, Eastern and Southeastern European Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 92-109, December.
    9. Mr. Eugenio M Cerutti & Mr. Christian Schmieder, 2012. "The Need for "Un-consolidating" Consolidated Banks' Stress Tests," IMF Working Papers 2012/288, International Monetary Fund.
    10. Giuseppe Montesi & Giovanni Papiro, 2018. "Bank Stress Testing: A Stochastic Simulation Framework to Assess Banks’ Financial Fragility †," Risks, MDPI, vol. 6(3), pages 1-54, August.
    11. Mr. Heiko Hesse & Mr. Ferhan Salman & Mr. Christian Schmieder, 2014. "How to Capture Macro-Financial Spillover Effects in Stress Tests?," IMF Working Papers 2014/103, International Monetary Fund.
    12. A. P. Pati, 2017. "Credit Risk Stress Testing Practices in BRICS: Post-global Financial Crisis Scenario," Global Business Review, International Management Institute, vol. 18(4), pages 936-954, August.
    13. Bank for International Settlements, 2016. "Experiences with the ex ante appraisal of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 56, december.
    14. Li Lian Ong & Ceyla Pazarbasioglu, 2014. "Credibility and Crisis Stress Testing," IJFS, MDPI, vol. 2(1), pages 1-67, February.
    15. Busch, Ramona & Koziol, Philipp & Mitrovic, Marc, 2015. "Many a little makes a mickle: Macro portfolio stress test for small and medium-sized German banks," Discussion Papers 23/2015, Deutsche Bundesbank.
    16. Georgios Papadopoulos & Dionysios Chionis & Nikolaos P. Rachaniotis, 2018. "Macro-financial linkages during tranquil and crisis periods: evidence from stressed economies," Risk Management, Palgrave Macmillan, vol. 20(2), pages 142-166, May.
    17. Ms. Li L Ong & Ceyla Pazarbasioglu, 2013. "Credibility and Crisis Stress Testing," IMF Working Papers 2013/178, International Monetary Fund.
    18. Pablo García & Bárbara Ulloa, 2017. "Financial Surveillance and Communication: Recent and Future Challenges from the Chilean Experience," Economic Policy Papers Central Bank of Chile 61, Central Bank of Chile.
    19. International Monetary Fund, 2014. "People’s Republic of China–Hong Kong Special Administrative Region: Financial Sector Assessment Program-Stress Testing the Banking Sector-Technical Note," IMF Staff Country Reports 2014/210, International Monetary Fund.
    20. Busch, Ramona & Koziol, Philipp & Mitrovic, Marc, 2018. "Many a little makes a mickle: Stress testing small and medium-sized German banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 237-253.

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