Measuring capital adequacy supervisory stress tests in a Basel world

Larry Wall

No 2013-15, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: The United States is now committed to using two relatively sophisticated approaches to measuring capital adequacy: Basel III and stress tests. This paper shows how stress testing could mitigate weaknesses in the way Basel III measures credit and interest rate risk, the way it measures bank capital, and the way it creates countercyclical capital buffers. However, this paper also emphasizes the extent to which stress tests add value will depend upon the exercise of supervisor discretion in the design of stress scenarios. Whether supervisors will use this discretion more effectively than they have used other tools in the past remains to be seen.

Keywords: capital adequacy; Basel capital ratios; stress tests (search for similar items in EconPapers)
JEL-codes: E50 G01 G21 G28 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-12-01
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba and nep-rmg
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Related works:
Journal Article: Measuring capital adequacy: supervisory stress-tests in a Basel world (2014)
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