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Rules of Thumb for Bank Solvency Stress Testing

  • Daniel C. Hardy
  • Christian Schmieder

Rules of thumb can be useful in undertaking quick, robust, and readily interpretable bank stress tests. Such rules of thumb are proposed for the behavior of banks’ capital ratios and key drivers thereof—primarily credit losses, income, credit growth, and risk weights—in advanced and emerging economies, under more or less severe stress conditions. The proposed rules imply disproportionate responses to large shocks, and can be used to quantify the cyclical behaviour of capital ratios under various regulatory approaches.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/232.

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Length: 67
Date of creation: 11 Nov 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/232
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  1. Rodrigo Alfaro & Mathias Drehmann, 2009. "Macro stress tests and crises: what can we learn?," BIS Quarterly Review, Bank for International Settlements, December.
  2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
  3. Marcucci, Juri & Quagliariello, Mario, 2009. "Asymmetric effects of the business cycle on bank credit risk," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1624-1635, September.
  4. Christian Schmieder & Maher Hasan & Claus Puhr, 2011. "Next Generation Balance Sheet Stress Testing," IMF Working Papers 11/83, International Monetary Fund.
  5. Düllmann, Klaus & Scheicher, Martin & Schmieder, Christian, 2007. "Asset correlations and credit portfolio risk: an empirical analysis," Discussion Paper Series 2: Banking and Financial Studies 2007,13, Deutsche Bundesbank, Research Centre.
  6. Andreas A. Jobst & Li L. Ong & Christian Schmieder, 2013. "A Framework for Macroprudential Bank Solvency Stress Testing; Application to S-25 and Other G-20 Country FSAPs," IMF Working Papers 13/68, International Monetary Fund.
  7. Lopez, Jose A., 2004. "The empirical relationship between average asset correlation, firm probability of default, and asset size," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 265-283, April.
  8. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1.
  9. Christian Schmieder & Tidiane Kinda & Nassim N. Taleb & Elena Loukoianova & Elie Canetti, 2012. "A New Heuristic Measure of Fragility and Tail Risks; Application to Stress Testing," IMF Working Papers 12/216, International Monetary Fund.
  10. Giesecke, Kay & Longstaff, Francis A. & Schaefer, Stephen & Strebulaev, Ilya, 2011. "Corporate bond default risk: A 150-year perspective," Journal of Financial Economics, Elsevier, vol. 102(2), pages 233-250.
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