A guide to imf stress testing methods and models pdf
A Guide to IMF Stress Testing : Methods and Models [excerpt]IMF Stress:As part of its prudential supervision, the Reserve Bank undertakes supervisory stress tests. These exercises involve subjecting several financial institutions to a common stress scenario, with oversight from regulators. The Reserve Bank uses supervisory tests to:. Developing a comprehensive stress testing framework for the New Zealand banking system has been a strategic priority for the Reserve Bank in recent years. In July , the Reserve Bank published a Bulletin article outlining its approach to stress testing banks, and how it interprets test results when assessing the stability of the financial system. Banks are expected to invest in stress testing models and infrastructure, and to conduct their own internal stress tests as part of their Internal Capital Adequacy Assessment Process ICAAP. In May , the Reserve Bank issued a discussion document on stress testing methodology for New Zealand incorporated banks.
Bank Stress Test
A bank stress test is an analysis conducted under hypothetical unfavorable economic scenarios, such as a deep recession or financial market crisis, designed to determine whether a bank has enough capital to withstand the impact of adverse economic developments. Bank stress tests were widely put in place after the global financial crisis, the worst in decades. The ensuing Great Recession left many banks and financial institutions severely undercapitalized or revealed their vulnerability to market crashes and economic downturns. As a result, federal and financial authorities greatly expanded regulatory reporting requirements to focus on the adequacy of capital reserves and internal strategies for managing capital. Banks must regularly determine their solvency and document it. To determine banks' financial health in crisis situations, stress tests focus on a few key areas, such as credit risk, market risk, and liquidity risk.
This book represents a compendium of stress testing methods, models, and tools developed or To guide users, each chapter off ers a summary describing the application of a method or model, . ISBN: (web PDF).
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Results of recent stress tests
Financial crises. Banks and banking, International. International Monetary Fund. Ong, Li Lian. The global financial crisis has placed a spotlight on the stress testing of financial systems. Although weaknesses in stress tests were exposed by the crisis, the recent experience of several countries has conversely provided a stark illustration of their potential benefit in examining the resilience of bank balance sheets when performed credibly and transparently. Nonetheless, the large menu of stress testing approaches, methods, and models raises questions about their appropriate application under different situations and, consequently, the comparability and reliability of the associated analyses.