The 2008/2009 global crisis highlighted the vulnerabilities and inter-dependencies in the financial system including the global over-the-counter (OTC) derivatives markets, where significant counterparty credit risk prevails. In this paper, we deal with risk under Basel III banking regulation and...

This paper focuses on how to calibrate models used to stress test the most important risks in the banking system. Based on the results of a verification of the Czech National Bank’s stress testing methodology, the paper argues that stress tests should be calibrated conservatively and slightly...