Macro Prudential Stress Test Models A Survey
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Macro-Prudential Stress Test Models: A Survey
Author: David Aikman
language: en
Publisher: International Monetary Fund
Release Date: 2023-08-25
In this paper, we survey the rapidly developing literature on macroprudential stress-testing models. The scope of the survey includes models of contagion between banks, models of contagion within the wider financial system including non-bank financial institutions such as investment funds, and models that emphasise the two-way interaction between the financial sector and the real economy. Our aim is two-fold: first, to provide a reference guide of the state-of-the-art for those developing such models; second, to distil insights from this endeavour for policy-makers using these models. In our view, the modelling frontier faces three main challenges: (a) our understanding of the potential for amplification in sectors of the non-bank financial system during periods of stress, (b) multi-sectoral models of the non-bank financial system to analyse the behaviour of the overall demand and supply of liquidity under stress and (c) stress testing models that incorporate comprehensive two-way interactions between the financial system and the real economy. Emerging lessons for policy-makers are that, for a given-sized shock hitting the system, its eventual impact will depend on (a) the size of financial institutions' capital and liquidity buffers, (b) the liquidation strategies financial institutions adopt when they need to raise cash, and (c) the topology of the financial network.
Handbook of Financial Stress Testing
Discover current uses and future development of stress tests, the most innovative regulatory tool to prevent and fight financial crises.
Stress Testing at the IMF
Author: Mr.Tobias Adrian
language: en
Publisher: International Monetary Fund
Release Date: 2020-02-05
This paper explains specifics of stress testing at the IMF. After a brief section on the evolution of stress tests at the IMF, the paper presents the key steps of an IMF staff stress test. They are followed by a discussion on how IMF staff uses stress tests results for policy advice. The paper concludes by identifying remaining challenges to make stress tests more useful for the monitoring of financial stability and an overview of IMF staff work program in that direction. Stress tests help assess the resilience of financial systems in IMF member countries and underpin policy advice to preserve or restore financial stability. This assessment and advice are mainly provided through the Financial Sector Assessment Program (FSAP). IMF staff also provide technical assistance in stress testing to many its member countries. An IMF macroprudential stress test is a methodology to assess financial vulnerabilities that can trigger systemic risk and the need of systemwide mitigating measures. The definition of systemic risk as used by the IMF is relevant to understanding the role of its stress tests as tools for financial surveillance and the IMF’s current work program. IMF stress tests primarily apply to depository intermediaries, and, systemically important banks.