IDEAS home Printed from https://ideas.repec.org/a/aza/rmfi00/y2020v13i2p126-134.html
   My bibliography  Save this article

Are stress tests beauty contests? (and what we can do about it)

Author

Listed:
  • Quagliariello, Mario

    (Director of the Economic Analysis and Statistics Department, European Banking Authority, France)

Abstract

There is increasing debate on whether official-sector stress tests are fit for purpose and deliver what they are designed for. In the European Union, this discussion focuses not only on the costs and benefits of such a large-scale bottom-up exercise and on the possible options to improve its usefulness for banks, supervisors and the general public, but also on exploring ways to make it less burdensome. This paper discusses whether some improvements to the design of the EU-wide stress test could better align the incentives of the different stakeholders involved. In particular, the objective is to understand whether there is room for mitigating the beauty contest problem, namely the problem that banks are more interested in showing that they are outperforming others than in identifying actual risks in an adverse scenario.

Suggested Citation

  • Quagliariello, Mario, 2020. "Are stress tests beauty contests? (and what we can do about it)," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 13(2), pages 126-134, March.
    • Handle: RePEc:aza:rmfi00:y:2020:v:13:i:2:p:126-134
    as

    Download full text from publisher

    File URL: https://hstalks.com/article/5498/download/
    Download Restriction: Requires a paid subscription for full access.
    File URL: https://hstalks.com/article/5498/
    Download Restriction: Requires a paid subscription for full access.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    stress test; bank; European Banking Authority; supervision; beauty contest; incentives;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aza:rmfi00:y:2020:v:13:i:2:p:126-134. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Henry Stewart Talks (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.