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Stress testing of banks: an introduction

Author

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  • Dent, Kieran

    () (Bank of England)

  • Westwood, Ben

    () (Bank of England)

  • Segoviano, Miguel

    (International Monetary Fund)

Abstract

The usage and prominence of bank stress tests has risen substantially in the years following the global financial crisis. They are now established as a key part of the bank regulation toolkit. Typically, bank stress tests measure the resilience of banks to hypothetical adverse scenarios like severe recessions, with results used by central banks and regulators to measure risks and manage them through the setting of prudential policy. Over time, to enhance their usefulness to policymakers, stress tests are likely to develop further, for example by testing banks against a wider range of resilience metrics than capital, and further exploring how stresses might be transmitted across the financial system (eg through contagion).

Suggested Citation

  • Dent, Kieran & Westwood, Ben & Segoviano, Miguel, 2016. "Stress testing of banks: an introduction," Bank of England Quarterly Bulletin, Bank of England, vol. 56(3), pages 130-143.
  • Handle: RePEc:boe:qbullt:0204
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    References listed on IDEAS

    as
    1. Liliana B Schumacher & Theodore M. Barnhill, 2011. "Modeling Correlated Systemic Liquidity and Solvency Risks in a Financial Environment with Incomplete Information," IMF Working Papers 11/263, International Monetary Fund.
    2. Dimitri G Demekas, 2015. "Designing Effective Macroprudential Stress Tests; Progress So Far and the Way Forward," IMF Working Papers 15/146, International Monetary Fund.
    3. Farag, Marc & Harland , Damian & Nixon, Dan, 2013. "Bank capital and liquidity," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 201-215.
    4. Gregorio Impavido, 2011. "Stress Tests for Defined Benefit Pension Plans – A Primer," IMF Working Papers 11/29, International Monetary Fund.
    5. Maria Soledad Martinez Peria & Giovanni Majnoni & Matthew T Jones & Winfrid Blaschke, 2001. "Stress Testing of Financial Systems; An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 01/88, International Monetary Fund.
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