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Stress testing for supervisory purposes: Framework and challenges

Author

Listed:
  • Cox, Joseph
  • Ryu, Lisa

Abstract

Since 2009, when the Federal Reserve conducted the Supervisory Capital Assessment Program (SCAP), the Federal Reserve has been conducting supervisory stress tests to evaluate the capital adequacy of large banks and to support broad supervisory programmes. These stress tests provide a case study on the key challenges to designing a supervisory stress testing framework for ongoing supervision. The evolution of supervisory stress testing in the USA also provides a lens to examine particular considerations for scenario design, stress testing methodology, and public disclosure within the context of an annual exercise. The US experience suggests that annual supervisory stress tests can help link micro-prudential supervision to macro-prudential objectives; however, the value of supervisory stress tests is best assessed within the context of the broader supervisory programmes they support.

Suggested Citation

  • Cox, Joseph & Ryu, Lisa, 2013. "Stress testing for supervisory purposes: Framework and challenges," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 7(1), pages 6-15, December.
    • Handle: RePEc:aza:rmfi00:y:2013:v:7:i:1:p:6-15
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    More about this item

    Keywords

    stress testing framework; scenario design; stress test models; market discipline;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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