Supervisory Simultaneous Stress Testing Based on Common Scenarios

Financial System and Bank Examination Department of the Bank of Japan and Strategy Development and Management Bureau, and Supervision Bureau of the Financial Services Agency
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Financial System and Bank Examination Department of the Bank of Japan: Bank of Japan
Strategy Development and Management Bureau, and Supervision Bureau of the Financial Services Agency: Financial Services Agency

No 20-E-9, Bank of Japan Review Series from Bank of Japan

Abstract: In light of the experience of the 2008 global financial crisis, the use of stress testing has become widespread among financial authorities in major jurisdictions as a central tool in assessing the resilience of systemically important financial institutions. In Japan, too, given that major banks' risk profiles have become more diversified and complex in recent years as they have expanded their overseas activities and non-commercial banking businesses within their groups, it is becoming ever more important to use stress testing for assessing banks' resilience and ensuring that risk management capabilities are put in place. This paper outlines the supervisory simultaneous stress testing based on common scenarios, an exercise newly started by the Bank of Japan and the Financial Services Agency, describing its background, differences in the institutional arrangements from the United States and Europe, and the role of benchmarking and horizontal reviews.

Date: 2020-12-17
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