System-wide stress tests: a survey of empirical evidence, concepts, and methodologies

This paper surveys the rapidly evolving literature on system-wide stress-testing models, with particular emphasis on the interconnections among multiple financial institutions, including both banks and non-bank financial intermediaries. We begin by reviewing the key systemic events that motivate the development of such models. We then describe the network structures that characterize financial interconnections and review the principal modelling approaches, highlighting the most recent methodological advances. We then categorize the types of shocks typically analysed and the mechanisms through which contagion propagates across institutions. Finally, we highlight the main lessons learned and identify the critical gaps that still need to be addressed.