A Framework for Stress Testing Banks’ Credit Risk

Jim Wong, Ka-Fai Choi and Tom Fong ()

Chapter 11 in The Banking Sector in Hong Kong, 2008, pp 240-260 from Palgrave Macmillan

Abstract: Abstract Macro stress testing refers to a range of techniques used to assess the vulnerability of a financial system to ‘exceptional but plausible’ macroeconomic shocks.2 Increasingly, macro stress testing plays an important role in the macro-prudential analysis of public authorities. The main objective is to identify structural vulnerability and overall risk exposures in a financial system that could lead to systemic problems. In conjunction with stress testing to assess the vulnerability of the portfolios of individual institutions, macro stress testing forms the main part of system-wide analysis, which measures the risk exposure of a group of financial institutions to a specific stress scenario. It can also serve as a tool for cross-checking results obtained by financial institutions’ internal models.

Keywords: Credit Risk; Banking Sector; Real Interest Rate; Macroeconomic Variable; Default Rate (search for similar items in EconPapers)
Date: 2008
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Working Paper: A Framework for Stress Testing Bank's Credit Risk (2006)
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DOI: 10.1057/9780230227378_11

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