Macrofinancial Stress Testing on Australian Banks
Nicholas Garvin,
Samuel Kurian,
Mike Major and
David Norman
Additional contact information
Nicholas Garvin: Reserve Bank of Australia
Samuel Kurian: Reserve Bank of Australia
Mike Major: Reserve Bank of Australia
David Norman: Reserve Bank of Australia
RBA Research Discussion Papers from Reserve Bank of Australia
Abstract:
Macrofinancial stress testing is a tool to help policymakers better understand the key systemic vulnerabilities in a financial system. The Reserve Bank of Australia's (RBA) macrofinancial bank stress testing model is an example of this, enabling the RBA to analyse potential financial risks to Australia's banking sector, such as those arising during the COVID-19 pandemic. The model projects how economic shocks may influence a bank's profitability, dividends, loan growth and capital position, primarily using decision rules and accounting identities that are uniformly applied to profit and balance sheet data for the nine largest banks operating in Australia. It is designed with a focus on understanding systemic vulnerabilities and a philosophy of prioritising transparency over complexity. The key advantages of this model are its ability to quickly produce estimates of the capital loss in response to various macroeconomic scenarios, model various forms of contagion across banks, and allow the modeller to undertake 'reverse' stress tests. The paper sets out the key features of this model, how it was used during the past two years and the areas in which further work is required.
Keywords: banks; stress testing; Australia (search for similar items in EconPapers)
JEL-codes: E02 F01 G21 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.rba.gov.au/publications/rdp/2022/pdf/rdp2022-03.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2022-03
DOI: 10.47688/rdp2022-03
Access Statistics for this paper
More papers in RBA Research Discussion Papers from Reserve Bank of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Paula Drew ().