Market-Based Structural Top-Down Stress Tests of the Banking System

Jorge Chan-Lau

No 2013/088, IMF Working Papers from International Monetary Fund

Abstract: Despite increased need for top-down stress tests of financial institutions, performing them is challenging owing to the absence of granular information on banks’ trading and loan portfolios. To deal with these data shortcomings, this paper presents a market-based structural top-down stress testing methodology that relies in market-based measures of a bank's probability of default and structural models of default risk to infer the capital losses they could experience in stress scenarios. As an illustration, the methodology is applied to a set of banks in an advanced emerging market economy.

Keywords: WP; bank; market; default; result; Stress tests; banks; default risk; systemic risk; structural models; market prices; probability of default; capital plans bank; bank analyst; market estimate; IMF-World Bank FSAP; market risk factors; banks in the sample; stress test methodology; banks' projection; Stress testing; Capital adequacy requirements; Debt default; Global (search for similar items in EconPapers)
Pages: 18
Date: 2013-04-10
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Citations: View citations in EconPapers (3)

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