Stress Tests and Policy

Andrew Metrick

Journal of Financial Crises, 2021, vol. 3, issue 1, 1-19

Abstract: Ten years after the Federal Reserve's crisis-era bank stress test, it is time to recalibrate the stress tests for "peacetime." Outside of a crisis, supervisors should tailor stress tests to focus on their comparative advantages by taking a macroprudential focus, with severe scenarios that enable them to learn about emerging risks in both traditional and shadow banking sectors. In peacetime, also, supervisors should emphasize risk- management practices and be wary of forcing rapid changes in capital levels for individual banks, while linking stress-test results with countercyclical capital buffers across the system.

Keywords: Supervisory Capital Assessment Program; SCAP; DFAST; CCAR; Federal Reserve; bank-capital policy; macroprudential policy; supervision; transparency (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
Date: 2021
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