Next Generation Balance Sheet Stress Testing

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.
Publication date: April 2011
ISBN: 9781455226054
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , International - Economics , banking , capital requirements , banking systems , market risk , capital adequacy , banking system , risk-weighted assets , tier 1 capital , bank of england , central banking , recapitalization , national bank , emerging markets , banking supervision , foreign exchange , bank behavior

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