Systemic risk measurement and macroprudential policy: Implications for New Zealand and beyond

The recent financial crisis has brought the issue of banking system ‘stress tests’ to the fore. This paper describes recent progress in the area of systemic risk modelling and measurement and discusses how the results of such analyses are helping shape the practical framework for macroprudential policy and bank stress testing. It also considers how liquidity regulations on banks, such as the core funding ratio implemented by the Reserve Bank of New Zealand, can affect the probability and potential impact of shocks to the financial system.