Introduction to Applied Stress Testing

Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.

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Year of publication:	2007-03-01
Authors:	Cihák, Martin
Institutions:	International Monetary Fund (IMF)
Subject:	Stress testing \| Financial soundness indicators \| Financial systems \| Financial risk \| Credit risk \| Interest rates \| Exchange risk \| Liquidity \| Fund \| banking \| foreign exchange \| capital adequacy \| financial stability \| financial sector \| financial institutions \| interest rate risk \| banking system \| national bank \| banking sector \| financial system \| bonds \| capital adequacy ratio \| banking systems \| bank data \| present value \| bank soundness \| probability of default \| bank of england \| interbank market \| bank safety \| bank failures \| bank exposures \| bond \| financial markets \| net present value \| foreign exchange exposure \| income statement \| monetary authority \| bank for international settlements \| stock prices \| equity capital \| financial statements \| bank risk \| return on assets \| government bonds \| nominal exchange rate \| banks ? solvency \| loan classification \| bank research \| deposit rates \| banking supervision \| cash flow \| bank runs \| stock market \| bond portfolio \| derivative \| bank credit \| bank stocks \| banking institutions \| mortgage loan \| stock indices \| equity markets \| bank financing \| deposit interest rates \| stock price \| bank asset \| future cash flow \| reserve requirements \| bank owners \| bank failure \| bank capital \| bankruptcies \| deposit interest \| banking license \| bank ? exposures \| bond portfolios \| stock market index \| bank management \| bank run \| bank asset quality \| cash flows \| currency of denomination \| bank supervisors \| bond prices \| banking business \| repricing gap \| banks ? balance sheets \| bank size \| return on equity \| excess liquidity \| nominal interest rate \| bank of norway \| liquidity support \| financial instability \| loan concentration

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Extent:	application/pdf
Series:	IMF Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	The text is part of a series IMF Working Papers Number 07/59 7 pages long
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005248151