Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia

Zuzana Fungáèová () and Petr Jakubík
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Zuzana Fungáèová: Bank of Finland, Institute for Economies in Transition (BOFIT)
Authors registered in the RePEc Author Service: Zuzana Fungáčová

No 2012/04, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The recent financial crisis emphasised the need for effective financial stability analyses and tools for detecting systemic risk. This paper looks at assessment of banking sector resilience through stress testing. We argue such analyses are valuable even in emerging economies that suffer from limited data availability, short time series and structural breaks. We propose a top-down stress test methodology that employs relatively limited information to overcome this data problem. Moreover, as credit growth in emerging economies tends to be rather volatile, we rely on dynamic approach projecting key balance sheet items. Application of our proposed stress test framework to the Russian banking sector reveals a high sensitivity of the capital adequacy ratio to the economic cycle that shows up in both of the two-year macroeconomic scenarios considered: a baseline and an adverse one. Both scenarios indicate the need for capital increase in the Russian banking sector. Furthermore, given that Russia’s banking sector is small and fragmented relative to advanced economies, the loss of external financing can cause profound economic stress, especially for medium-sized and small enterprises. The Russian state has a low public debt-to-GDP ratio and plays decisive role in the banking sector. These factors allow sufficient fiscal space for recapitalisation of problematic banks under both of our proposed baseline and adverse scenarios.

Keywords: stress testing; bank; Russia (search for similar items in EconPapers)
JEL-codes: G21 G28 P34 (search for similar items in EconPapers)
Pages: 17pages
Date: 2012-02, Revised 2012-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-rmg and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia (2013)
Working Paper: Bank stress tests as an information device for emerging markets: The case of Russia (2012)
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