Measuring capital adequacy: supervisory stress-tests in a Basel world

Larry Wall

Journal of Financial Perspectives, 2014, vol. 2, issue 1, 85-94

Abstract: The U.S. is now committed to using two relatively sophisticated approaches to measuring capital adequacy: Basel III and stress-tests. This paper shows how stress testing could mitigate weaknesses in the way Basel III measures credit and interest rate risk, the way it measures bank capital and the way it creates countercyclical capital buffers. However, the paper also emphasizes the extent to which stress-tests add value will depend upon the exercise of supervisor discretion in the design of stress scenarios. Whether supervisors will use this discretion more effectively than they have used other tools in the past remains to be seen.

Keywords: Capital adequacy; Basel capital ratios; stress test (search for similar items in EconPapers)
JEL-codes: E50 G01 G21 G28 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Measuring capital adequacy supervisory stress tests in a Basel world (2013)
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:ris:jofipe:0039

Access Statistics for this article

Journal of Financial Perspectives is currently edited by Ms Alina Stefan

More articles in Journal of Financial Perspectives from EY Global FS Institute 1 More London Place, London SE1 2AF, UK.
Bibliographic data for series maintained by Ms Alina Stefan ( this e-mail address is bad, please contact ).