Last edited by Gacage
Sunday, February 16, 2020 | History

4 edition of Stress-testing financial systems found in the catalog.

Stress-testing financial systems

Marco Sorge

Stress-testing financial systems

an overview of current methodologies

by Marco Sorge

  • 240 Want to read
  • 25 Currently reading

Published by Bank for International Settlements in Basel, Switzerland .
Written in English


Edition Notes

Statementby Marco Sorge.
SeriesBIS working papers,, no. 165, BIS working papers (Online) ;, no. 165.
ContributionsBank for International Settlements. Monetary and Economic Dept.
Classifications
LC ClassificationsHG3879
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL3477043M
LC Control Number2005616643

Hence, stress testing may be increasingly used by financial firms for both internal and external purposes. How does banks' credit risk react to macroeconomic shocks? It is used to find defects where one application data blocks another application. Lastly, you again run the entire cycle to determine that the tweaks have produced the desired results. Financial contagion is one of the key elements on the definition of systemic risk; in fact, both terms were used in an interchangeable way in the past.

During the period between Stress-testing financial systems bookChina's banking sector has undergone significant reforms. Senior management teams can then brainstorm and document different scenarios that would realistically fit the level of losses calculated. Thus, stress testing is usually conducted as a regulatory requirement aimed at ensuring that institutions have adequate solvency to survive a number of adverse but likely scenarios. The successive financial stress tests conducted by the European Banking Authority and the Committee of European Banking Supervisors inand illustrate this dynamic. Google Scholar United Nations. Historical experience has shown that they cannot capture sudden and dramatic changes in market circumstances since such changes are, by definition, atypical.

Stress Testing process can be done in 5 major steps: Planning the Stress Test. Google Scholar United Nations. For many, a spreadsheet can effectively do the trick. Since such events may not be relevant to a specific portfolio, hypothetical scenarios that are directly relevant can be crafted, but at the cost of a more labor-intensive and judgmental process.


Share this book
You might also like
[Letter] To the Editor of The Independent

[Letter] To the Editor of The Independent

Old-time primitive Methodism in Canada

Old-time primitive Methodism in Canada

Groucho, Harpo, Chico and sometimes Zeppo

Groucho, Harpo, Chico and sometimes Zeppo

effect of technophobia and attitudes toward technology on job performance.

effect of technophobia and attitudes toward technology on job performance.

Tavern of the seas

Tavern of the seas

Leadership as lunacy

Leadership as lunacy

Non-accidental injury

Non-accidental injury

Annos USA.

Annos USA.

Prediction of the performance of an isolated saturated synchronous generator.

Prediction of the performance of an isolated saturated synchronous generator.

SEEDS

SEEDS

Absolute C++

Absolute C++

Khubilai Khan

Khubilai Khan

Stress-testing financial systems by Marco Sorge Download PDF Ebook

Stress-testing financial systems book respect to stress testing, supervisors are concerned that institutions monitor their risk exposures with appropriate reference to unlikely events that could cause portfolio losses. Regulatory Stress Testing Following the financial crisis, regulatory reporting for the financial industry—specifically for banks—was significantly expanded with a broader focus on stress testing and capital Stress-testing financial systems book, mainly due to the Dodd-Frank Act.

Climate change: A risk assessment. In recent years, regulators have also required financial institutions to carry out stress tests to ensure their capital holdings and other assets are adequate. Cowles Foundation Discussion Paper, No. In every case, these bodies have gone beyond the established minimum requirements and have set their own standards towards establishing best practices in the financial industry.

The second step aggregates these individual results to evaluate the overall impact to the loan portfolio. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

Such value-at-risk VaR analysis has become a standard risk-management tool. Kalirai and Scheicher construct a regression estimation of time series data, the accumulated loan losses and a wide range of macroeconomic variables including GDP, industrial output gap, the consumer price index, the money supply growth rates, the stock market index, exchange rate, exports, and oil prices.

These portfolios include interest rate, equity, foreign exchange, and commodity instruments and are amenable to stress testing because their market prices are updated on a regular basis.

Stress Testing and Risk Integration in Banks

Macro stress testing refers to a range of techniques Stress-testing financial systems book to assess the vulnerability of a financial system to "exceptional but plausible" macroeconomic shocks see Blaschke et al, and Sorge, Limits to growth.

Tweaking and Optimization: In this stage, you fine-tune the system, change configurations, optimize the code with goal meet the desired benchmark. Several community banks have successfully implemented the first stage of the transactional method when underwriting credits. The total amount of liquidity needed by banks to settle a given set of payments is dependent on the balancedness of the circulation of money from account to account reciprocity of paymentsthe timing of payments and the netting procedures used.

Regulations require banks to carry out various stress-test scenarios and report on their internal procedures for managing capital and risk. Google Scholar Lydenberg, S.

Impact of stress tests on the financial system

Key Takeaways Stress testing is a computer-simulated technique to analyze how banks and investment portfolios fare in drastic economic scenarios.

Even though, we believe that such approaches graph theory and network models are very Stress-testing financial systems book in understanding the relevance of particular institutions due to their connections in the financial system, and to model the transmission of shocks Stress-testing financial systems book are not enough to model adequately systemic risk.

This method determines the losses a bank can withstand before it falls below well-capitalized. However, models are only simplifications of reality and cannot capture every aspect of these risks.

Chapter Preview Top 1. This management approach, which in many institutions preceded the regulatory approach, is being enhanced by the stress tests required by the ICAAP, and in many institutions Stress-testing financial systems book is in line with them.

The amount of liquidity held by banks on their accounts can be a lot less and usually is than the total value of transferred payments during a day.

Section 3 describes main features of Chinese commercial banks. Accordingly, stress testing is used increasingly as a complement to the more standard statistical models used for VaR analysis.

Stress testing involves running computer simulations to identify hidden vulnerabilities in institutions and investment portfolios to evaluate how well they might weather adverse events and market conditions.The paper has three objectives.

After a general introduction to some of the concepts and basic techniques of stress testing, the paper gives an overview of some of the conceptual issues involved in evaluating risks at the aggregated level of financial systems.

Second, this study provides a basic framework and toolkit for conducting stress tests. That is the premise of Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis.

Based on a policy simulation that was conducted before the September 11, Impact of stress tests on the financial system. and identifying the source of potential weaknesses that could result in new adverse events capable of leading to financial system contagion.

Stress testing is a series of techniques that attempt to measure portfolio, individual bank or financial system sensitivity to changes in certain risk.Dec 23,  · The IMF has had extensive involvement in the stress testing pdf financial systems in its member countries.

This book presents pdf methods and models that have been developed by IMF staff over the years and that can be applied to the gamut of financial systems.

An added resource for readers is the companion CD-Rom, which makes available the toolkit with some of the models presented in the book.E-Book Review and Description: Stress Testing for Financial Institutions provides you with steering in regard to the stress testing course of and consists of various chapters on state of affairs analysis written by practitioners at Citigroup, Swedbank, GE Capital and the Financial establishment of Finland.Stress Testing of Financial Systems: Ebook Overview of Issues, Methodologies, and FSAP Experiences Through the forward- looking stress-testing analysis the financial system stability and capital.