Into the Great Unknown: Stress Testing with Weak Data

23 Pages Posted: 1 Feb 2011

See all articles by Li Ong

Li Ong

International Monetary Fund (IMF)

Rodolfo Maino

International Monetary Fund (IMF)

Nombulelo Duma

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: December 2010

Abstract

Stress testing has become the risk management tool du jour in the wake of the global financial crisis. In countries where the information reported by financial institutions is considered to be of sufficiently good quality, and supervisory and regulatory standards are high, stress tests can be of significant value. In contrast, the proliferation of stress testing in underdeveloped financial systems with weak oversight regimes is fraught with uncertainties, as it is unclear what the results actually represent and how they could be usefully applied. In this paper, problems associated with stress tests using weak data are examined. We offer a potentially more useful alternative, the "breaking point" method, which also requires close coordination with on-site supervision and complemented by other supervisory tools and qualitative information. Excel spreadsheet templates of the stress tests presented in this paper are provided.

Keywords: Bank supervision, Banks, Data quality assessment framework, Financial institutions, Risk management

Suggested Citation

Ong, Li and Maino, Rodolfo and Duma, Nombulelo, Into the Great Unknown: Stress Testing with Weak Data (December 2010). IMF Working Paper No. 10/282, Available at SSRN: https://ssrn.com/abstract=1751395

Li Ong

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Rodolfo Maino

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nombulelo Duma

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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