The adoption of stress testing: why the Basel capital measures were not enough

Larry Wall

No 2013-14, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: The Basel capital adequacy ratios lost credibility with financial markets during the crisis. This paper argues that failure was the result of the reliance of the Basel standards on overstated asset values in reported equity capital. The United States? stress tests were able to assist in restoring credibility, in part because they could capture deterioration in asset values. However, whether stress tests will prove equally valuable in the next crisis is not clear. Some of the weaknesses in the Basel ratios are being addressed. Moreover, the U.S. tests? success was the result of a combination of circumstances that may not exist next time.

Keywords: Basel capital ratios; stress tests; financial crisis (search for similar items in EconPapers)
JEL-codes: E50 G01 G21 G28 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2013-12-01
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Citations: View citations in EconPapers (5)

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Journal Article: The adoption of stress testing: Why the Basel capital measures were not enough (2014)
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