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Next Generation Balance Sheet Stress Testing

Author

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  • Maher Hasan
  • Mr. Christian Schmieder
  • Mr. Claus Puhr

Abstract

This paper presents a "second-generation" solvency stress testing framework extending applied stress testing work centered on Cihák (2007). The framework seeks enriching stress tests in terms of risk-sensitivity, while keeping them flexible, transparent, and user-friendly. The main contributions include (a) increasing the risk-sensitivity of stress testing by capturing changes in risk-weighted assets (RWAs) under stress, including for non-internal ratings based (IRB) banks (through a quasi-IRB approach); (b) providing stress testers with a comprehensive platform to use satellite models, and to define various assumptions and scenarios; (c) allowing stress testers to run multi-year scenarios (up to five years) for hundreds of banks, depending on the availability of data. The framework uses balance sheet data and is Excel-based with detailed guidance and documentation.

Suggested Citation

  • Maher Hasan & Mr. Christian Schmieder & Mr. Claus Puhr, 2011. "Next Generation Balance Sheet Stress Testing," IMF Working Papers 2011/083, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2011/083
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    Cited by:

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    3. 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.
    4. Office of Financial Research (ed.), 2012. "Office of Financial Research 2012 Annual Report," Reports, Office of Financial Research, US Department of the Treasury, number 12-1, April.
    5. Ferrari, Stijn & Van Roy, Patrick & Vespro, Cristina, 2021. "Sensitivity of credit risk stress test results: Modelling issues with an application to Belgium," Journal of Financial Stability, Elsevier, vol. 52(C).
    6. International Monetary Fund, 2014. "Canada: Financial Sector Assessment Program-Stress Testing-Technical Note," IMF Staff Country Reports 2014/069, International Monetary Fund.
    7. Yun, Tae-Sub & Jeong, Deokjong & Park, Sunyoung, 2019. "“Too central to fail” systemic risk measure using PageRank algorithm," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 251-272.
    8. 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.
    9. Ventsislav Hristev, 2014. "Bank Stress-Testing Lessons from Central, Eastern and Southeastern European Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 92-109, December.
    10. International Monetary Fund, 2017. "Finland: Financial Sector Assessment Program: Technical Note-Stress Testing the Banking System and Interconnectedness Analysis," IMF Staff Country Reports 2017/006, International Monetary Fund.
    11. Dijkman,Miquel, 2015. "Monitoring financial stability in developing and emerging economies : practical guidance for conducting macroprudential analysis," Policy Research Working Paper Series 7248, The World Bank.
    12. Ms. Elena Loukoianova & Mr. Christian Schmieder & Mr. Tidiane Kinda & Mr. Nassim N. Taleb & Mr. Elie Canetti, 2012. "A New Heuristic Measure of Fragility and Tail Risks: Application to Stress Testing," IMF Working Papers 2012/216, International Monetary Fund.
    13. 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.
    14. Marcin Borsuk & Oskar Krzesicki, 2020. "InSTA – integrated stress-testing approach at NBP. The past, present and future perspectives," NBP Working Papers 325, Narodowy Bank Polski, Economic Research Department.
    15. Giuseppe Montesi & Giovanni Papiro, 2018. "Bank Stress Testing: A Stochastic Simulation Framework to Assess Banks’ Financial Fragility †," Risks, MDPI, Open Access Journal, vol. 6(3), pages 1-54, August.
    16. Mr. Christian Schmieder & Mr. Daniel C Hardy, 2013. "Rules of Thumb for Bank Solvency Stress Testing," IMF Working Papers 2013/232, International Monetary Fund.
    17. International Monetary Fund, 2016. "Morocco: Financial Sector Assessment Program: Technical Note-Stress Testing the Banking System," IMF Staff Country Reports 2016/329, International Monetary Fund.
    18. Roland Beck & Petr Jakubik & Anamaria Piloiu, 2015. "Key Determinants of Non-performing Loans: New Evidence from a Global Sample," Open Economies Review, Springer, vol. 26(3), pages 525-550, July.
    19. Gross, Marco & Población García, Francisco Javier, 2015. "A false sense of security in applying handpicked equations for stress test purposes," Working Paper Series 1845, European Central Bank.
    20. Marco Gross & Javier Población, 2019. "Implications of Model Uncertainty for Bank Stress Testing," Journal of Financial Services Research, Springer;Western Finance Association, vol. 55(1), pages 31-58, February.
    21. Mr. Heiko Hesse & Mr. Ferhan Salman & Mr. Christian Schmieder, 2014. "How to Capture Macro-Financial Spillover Effects in Stress Tests?," IMF Working Papers 2014/103, International Monetary Fund.
    22. International Monetary Fund, 2017. "Luxembourg: Financial Sector Assessment Program: Technical Note-Risk Analysis," IMF Staff Country Reports 2017/261, International Monetary Fund.
    23. Anastasios Petropoulos & Vasilis Siakoulis & Dionysios Mylonas & Aristotelis Klamargias, 2018. "A combined statistical framework for forecasting default rates of Greek Financial Institutions' credit portfolios," Working Papers 243, Bank of Greece.
    24. Magdalena Ziolo & Beata Zofia Filipiak & Iwona Bąk & Katarzyna Cheba, 2019. "How to Design More Sustainable Financial Systems: The Roles of Environmental, Social, and Governance Factors in the Decision-Making Process," Sustainability, MDPI, Open Access Journal, vol. 11(20), pages 1-34, October.

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    Keywords

    WP; IRB RWAs; bank; income;
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