Macroprudential policy analysis and tools – Stress test quality assurance from a top-down perspective

H. Mirza and Dawid Żochowski

Macroprudential Bulletin, 2017, vol. 3

Abstract: Bank stress testing has recently gained importance as a tool for both microprudential and macroprudential purposes. This article describes Quality Assurance (QA) as conducted internationally and introduces the process and its key stakeholders followed in the 2016 Stress Test Exercise. For the latter, the banks’ stress testing projections were challenged from different perspectives: a bank-specific perspective leveraging first-hand supervisory knowledge about individual banks, a top-down (TD) perspective using TD benchmarks and TD models, and a horizontal bottom-up (HBU) perspective employing peer benchmarks and integrating a country perspective based on NCA expertise. This QA process involving a close collaboration across teams ensured that QA outcomes reflected all perspectives in a balanced way. This article provides an overview of the QA process to which the TD team contributed, with the HBU team providing a peer review and the Joint Supervisory Teams (JSTs) providing a supervisory view. It focuses on the approach of the TD team using a model toolkit developed for macroprudential purposes (called STAMP€)9 and presents an international comparison of bank stress testing approaches, highlighting the merits of top-down stress test quality assurance as part of the QA process. JEL Classification: G00

Keywords: macroprudential policy; stress testing; financial stability (search for similar items in EconPapers)
Date: 2017-06
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