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Stress Testing Financial Systems; What to Do When the Governor Calls

Author

Listed:
  • Paul Louis Ceriel Hilbers
  • Matthew T Jones
  • Graham L Slack

Abstract

Stress testing is becoming a widely used tool to assess potential vulnerabilities in a financial system. This paper is intended to answer some of the basic questions that may arise as part of the process of stress testing. The paper begins with a discussion of stress testing in a financial system context, highlighting some of the differences between stress tests of systems and of individual portfolios. The paper provides an overview of the process itself, from identifying vulnerabilities, to constructing scenarios, to interpreting the results. The experience of the IMF in conducting stress testing as part of the Financial Sector Assessment Program (FSAP) is also discussed.

Suggested Citation

  • Paul Louis Ceriel Hilbers & Matthew T Jones & Graham L Slack, 2004. "Stress Testing Financial Systems; What to Do When the Governor Calls," IMF Working Papers 04/127, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/127
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    Citations

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    Cited by:

    1. de Bandt, O. & Bruneau, C. & El Amri, W., 2008. "Stress testing and corporate finance," Journal of Financial Stability, Elsevier, vol. 4(3), pages 258-274, September.
    2. Breuer, Thomas & Csiszár, Imre, 2013. "Systematic stress tests with entropic plausibility constraints," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1552-1559.
    3. George Papadopoulos & Savas Papadopoulos & Thomas Sager, 2016. "Credit risk stress testing for EU15 banks: a model combination approach," Working Papers 203, Bank of Greece.
    4. Markus K. Brunnermeier & Gary Gorton & Arvind Krishnamurthy, 2012. "Risk Topography," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 149-176.
      • Markus K. Brunnermeier & Gary Gorton & Arvind Krishnamurthy, 2011. "Risk Topography," NBER Chapters,in: NBER Macroeconomics Annual 2011, Volume 26, pages 149-176 National Bureau of Economic Research, Inc.
    5. repec:wsi:gcrxxx:v:05:y:2015:i:01:n:s2010493615500075 is not listed on IDEAS
    6. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
    7. Zuzana Fungacova & Petr Jakubik, 2013. "Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(1), pages 87-105, March.
    8. Abdelaziz Rouabah & John Theal, 2010. "Stress testing: The impact of shocks on the capital needs of the Luxembourg banking sector," BCL working papers 47, Central Bank of Luxembourg.
    9. Sebastiano Laviola & Juri Marcucci & Mario Quagliariello, 2006. "Stress testing credit risk: experience from the italian FSAP," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 269-291.
    10. Antonella Foglia, 2009. "Stress Testing Credit Risk: A Survey of Authorities' Aproaches," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 9-45, September.
    11. Carlo Gola & Francesco Spadafora, 2009. "Financial Sector Surveillance and the IMF," IMF Working Papers 09/247, International Monetary Fund.
    12. Michael Boss & Gerald Krenn & Claus Puhr & Markus Schwaiger, 2007. "Stress Testing the Exposure of Austrian Banks in Central and Eastern Europe," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 13, pages 115-134.
    13. Patrick Van Roy & Stijn Ferrari & Cristina Vespro, 2018. "Sensitivity of credit risk stress test results: Modelling issues with an application to Belgium," Working Paper Research 338, National Bank of Belgium.
    14. Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers 119, Netherlands Central Bank, Research Department.
    15. Martin Èihák, 2005. "Stress Testing of Banking Systems (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(9-10), pages 418-440, September.
    16. Mark Swinburne & Stéphanie Marie Stolz & Marina Moretti, 2008. "Stress Testing at the IMF," IMF Working Papers 08/206, International Monetary Fund.

    More about this item

    Keywords

    Financial soundness indicators; Stress testing; financial system; credit; financial institutions; prices; General Financial Markets; Financial Institutions and Services;

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