shortfalls are measured relative to risk-weighted assets, the ranking of financial institutions is very different from the V …-Lab stress test, whereas when measured relative to total assets, the results are quite similar. We show that the risk measures … used in risk-weighted assets are cross-sectionally uncorrelated with market measures of risk as they do not account for the …

their risk assessments and outcomes to those from a simple methodology that relies on publicly available market data and … market data; (iii) This discrepancy arises due to the reliance on regulatory risk weights in determining required levels of … capital once stress-test losses are taken into account. In particular, the continued reliance on regulatory risk weights in …