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Stress Testing in Wartime and in Peacetime

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  • Schuermann, Til

    (Oliver Wyman and University of Pennsylvania)

Abstract

Stress testing served us well as a crisis management tool, and we see it applied increasingly to peacetime oversight of banks and banking systems. Stress testing is rapidly become the dominant supervisory tool on both sides of the Atlantic. Yet the objectives and certainly the conditions are quite different, and to date we see a range of practices across jurisdictions. Stress testing has proved to be enormously useful, not just for the supervisors but also for the banks. Using a simple taxonomy of stress testing--scenario design, models and projections, and disclosure--I analyze some of those different approaches with a view to examining how wartime stress testing can be adapted to peacetime concerns.

Suggested Citation

  • Schuermann, Til, 2016. "Stress Testing in Wartime and in Peacetime," Working Papers 16-01, University of Pennsylvania, Wharton School, Weiss Center.
  • Handle: RePEc:ecl:upafin:16-01
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    File URL: http://fic.wharton.upenn.edu/fic/papers/16/16-01.pdf
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    1. Gary Gorton & Ellis W. Tallman, 2016. "How Did Pre-Fed Banking Panics End?," Working Papers (Old Series) 1603, Federal Reserve Bank of Cleveland.
    2. Acharya, Viral & Engle, Robert & Pierret, Diane, 2014. "Testing macroprudential stress tests: The risk of regulatory risk weights," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 36-53.
    3. Pavel Kapinos & Oscar A. Mitnik, 2016. "A Top-down Approach to Stress-testing Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(2), pages 229-264, June.
    4. Ms. Li L Ong & Ceyla Pazarbasioglu, 2013. "Credibility and Crisis Stress Testing," IMF Working Papers 2013/178, International Monetary Fund.
    5. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September.
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    Cited by:

    1. Thomas Philippon & Pierre Pessarossi & Boubacar Camara, 2017. "Backtesting European Stress Tests," NBER Working Papers 23083, National Bureau of Economic Research, Inc.
    2. Cecilia Parlatore, 2018. "Designing Stress Scenarios," 2018 Meeting Papers 1090, Society for Economic Dynamics.
    3. Cortés, Kristle R. & Demyanyk, Yuliya & Li, Lei & Loutskina, Elena & Strahan, Philip E., 2020. "Stress tests and small business lending," Journal of Financial Economics, Elsevier, vol. 136(1), pages 260-279.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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