Stress Testing of Banking Systems (in English)

Martin Èihák ()
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Martin Èihák: International Monetary Fund, Washington, D.C.
Authors registered in the RePEc Author Service: Martin Cihak ()

Czech Journal of Economics and Finance (Finance a uver), 2005, vol. 55, issue 9-10, 418-440

Abstract: In response to the increased financial instability of many countries in the 1990s, policy makers sought a better understanding of the vulnerabilities of financial systems and of measures that could help prevent financial crises. A key technique for quantifying financial-sector vulnerabilities is stress testing. This paper surveys the literature in the developing field of stress-testing financial systems and in particular banking systems. Stress tests are useful because they provide a quantitative measure of the vulnerability of a financial system to risk factors. This can be useful in combination with other analyses to draw conclusions about the overall stability of a financial system. The value added of macroprudential stress tests derives from their forward-looking macroeconomic perspective, their focus on the financial system as a whole, and their uniform approach to the assessment of risk exposures across institutions. The value added of stress tests can be particularly high if tests are performed regularly and their results analyzed over time.

Keywords: financial soundness; financial systems; stress testing (search for similar items in EconPapers)
JEL-codes: G21 G28 G29 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:55:y:2005:i:9-10:p:418-440

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