MACROPRUDENTIAL SUPERVISION AND AGENTS’ INFORMATION: WHAT STRESS TESTS REALLY TELL THE MARKETS

Fausto Pacicco, Luigi Vena and Andrea Venegoni ()
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Luigi Vena: School of Economics and Management, LIUC - Università Carlo Cattaneo, Corso Matteotti 22, 21053 Castellanza(VA), Italy
Andrea Venegoni: School of Economics and Management, LIUC - Università Carlo Cattaneo, Corso Matteotti 22, 21053 Castellanza(VA), Italy

Journal of Financial Management, Markets and Institutions (JFMMI), 2021, vol. 09, issue 02, 1-32

Abstract: Central bank’s macroprudential supervisory activities have to fulfill three distinct tasks: (i) assessing the banking system’s vulnerability to exogenous adverse turbulence, (ii) evaluating the risk of systemic crisis originating from idiosyncratic shocks, and (iii) measuring financial market’s sensitivity to policy stimuli. Given that macroprudential stress tests are the centerpiece of this policy approach, it is important to establish whether they are up to the task. We study how the 2011–2018 European Banking Authority stress tests affected market risk perception and show that they provided agents with valuable information on the policy stances and the vulnerabilities of the banking system, carrying out the above tasks successfully, especially the second and third tasks.

Keywords: Disclosure policy; macroprudential supervision; risk assessment; market reaction; stress tests (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2282717X21500092

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