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Stress Test Verification as Part of an Advanced Stress-Testing Framework

In: CNB Financial Stability Report 2009/2010

Author

Listed:
  • Adam Gersl
  • Jakub Seidler

Abstract

This article summarises the CNB’s updated banking sector stress-testing methodology and presents the results of a verification of that methodology. The verification, conducted at the end of 2009, is based on a comparison of the actual values of key banking sector variables – in particular the capital adequacy ratio – with predictions generated by the stress-testing models. The objective of the verification is to examine to what extent the assumptions of the CNB’s stress tests and the settings of the sub-models used are in line with reality. The results show that the current stress tests err on the right – i.e. pessimistic – side and slightly overestimate the risks. This leads on average to capital adequacy ratio estimates that are lower (more conservative) than the actual values. The article also identifies some areas of further development of the banking sector stress tests, for instance the use of verification as a standard part of the stress-testing framework in order to refine the stress tests.

Suggested Citation

  • Adam Gersl & Jakub Seidler, 2010. "Stress Test Verification as Part of an Advanced Stress-Testing Framework," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2009/2010, chapter 0, pages 92-101, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:fsr0910/1
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    File URL: https://www.cnb.cz/en/financial-stability/thematic-articles-on-financial-stability/
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    References listed on IDEAS

    as
    1. Martin ÈIHÁK & Jaroslav HEØMÁNEK & Michal HLAVÁÈEK, 2007. "New Approaches to Stress Testing the Czech Banking Sector (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(1-2), pages 41-59, March.
    2. Thomas Breuer & Martin Jandacka & Klaus Rheinberger & Martin Summer, 2009. "How to Find Plausible, Severe and Useful Stress Scenarios," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 205-224, September.
    3. Petr Jakubik & Christian Schmieder, 2008. "Stress Testing Credit Risk: Is the Czech Republic Different from Germany?," Working Papers 2008/9, Czech National Bank.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. František Brazdik & Michal Hlavacek & Aleš Marsal, 2012. "Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(3), pages 252-277, July.
    2. Jan Bruha, 2011. "Retail Credit Premiums and Macroeconomic Developments," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2010/2011, chapter 0, pages 133-140, Czech National Bank.
    3. Adam Gersl & Petr Jakubik & Tomas Konecny & Jakub Seidler, 2013. "Dynamic Stress Testing: The Framework for Assessing the Resilience of the Banking Sector Used by the Czech National Bank," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(6), pages 505-536, December.
    4. Miroslav Plasil, 2021. "Designing Macro-Financial Scenarios: The New CNB Framework and Satellite Models for Property Prices and Credit," Research and Policy Notes 2021/01, Czech National Bank.
    5. Adam Gersl & Petr Jakubik & Tomas Konecny & Jakub Seidler, 2012. "Dynamic Stress Testing: The Framework for Testing Banking Sector Resilience Used by the Czech National Bank," Working Papers 2012/11, Czech National Bank.

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