Stress Testing (2nd Edition)
First published:
ISBN: 978-1-78272-391-2
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Determining the Severity of Macroeconomic Stress Scenarios
Kapo Yuen
Foreword
Introduction
Response to Financial Crises: The Development of Stress Testing over Time
Stress Testing and Other Risk Management Tools
Econometric Pitfalls in Stress Testing
Stress-testing applications of Machine Learning Models
Four Years of Concurrent Stress Testing at the Bank of England: Developing the Macroprudential Perspective
Stress Testing for Market Risk
The Evolution of Stress Testing Counterparty Exposures
Liquidity Risk: The Case of the Brazilian Banking System
Operational Risk: An Overview of Stress-testing Methodologies
Peacetime Stress Testing: A Proposal
Stress-test Modelling for Loan Losses and Reserves
A New Framework for Stress Testing Banks’ Corporate Credit Portfolio
EU-wide Stress Test: The Experience of the EBA
Stress Testing Across International Exposures and Activities
The Asset Market Effects of Bank Stress-test Disclosures
An Alternative Approach to Stress Testing a Bank’s Trading Book
Determining the Severity of Macroeconomic Stress Scenarios
Governance over Stress Testing
In the middle of the 2008 financial panic caused by the collapse of the subprime housing market, the US government responded with unprecedented measures, including liquidity provision through various funding programmes, debt and deposit guarantees and large-scale asset purchases. In February 2009, the US banking supervisors conducted the first-ever system-wide stress test on 19 of the largest US bank holding companies (BHCs), known as the Supervisory Capital Assessment Program (SCAP) (Federal Reserve, 2009b). The stress test required these 19 BHCs to undergo simultaneous, forward-looking exercises designed to determine whether they would have adequate capital to sustain lending to the economy in the event of an unexpectedly adverse scenario. By conducting this SCAP exercise, the supervisors hoped that it would reduce uncertainty and restore confidence in the US financial institutions. In their 2010 staff reports, Peristian, Morgan and Savino (2010), of the Federal Reserve Bank of New York, concluded that the SCAP might have helped to quell the financial panic by releasing vital information about the BHCs. They claimed: “While investors did not need supervisors to tell them which
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