Introduction to Applied Stress Testing
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TLDR
This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses, using an Excel-based exercise with institution-by-institution data.Abstract:
Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.read more
Citations
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Key Determinants of Non-performing Loans: New Evidence from a Global Sample
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Using counterfactual simulations to assess the danger of contagion in interbank markets
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Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences
TL;DR: In this paper, the authors provide a general introduction to some of the concepts and basic techniques of stress testing, and give an overview of some conceptual issues involved in evaluating risks at the aggregated level of financial systems.
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Why Is Financial Stability a Goal of Public Policy
TL;DR: Anumber of developments in recent years have combined to put the issue of financial stability at the top of the agenda, not just of supervisory authorities, but of public policymakers more generally.