Stress Test Verification as Part of an Advanced Stress-Testing Framework

Adam Gersl and Jakub Seidler

Chapter Thematic Article 1 in CNB Financial Stability Report 2009/2010, 2010, pp 92-101 from Czech National Bank, Research and Statistics Department

Abstract: This article summarises the CNB’s updated banking sector stress-testing methodology and presents the results of a verification of that methodology. The verification, conducted at the end of 2009, is based on a comparison of the actual values of key banking sector variables – in particular the capital adequacy ratio – with predictions generated by the stress-testing models. The objective of the verification is to examine to what extent the assumptions of the CNB’s stress tests and the settings of the sub-models used are in line with reality. The results show that the current stress tests err on the right – i.e. pessimistic – side and slightly overestimate the risks. This leads on average to capital adequacy ratio estimates that are lower (more conservative) than the actual values. The article also identifies some areas of further development of the banking sector stress tests, for instance the use of verification as a standard part of the stress-testing framework in order to refine the stress tests.

Date: 2010
ISBN: 978-80-87225-24-0
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Citations: View citations in EconPapers (6)

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