Stress Testing Stress Tests: Challenging the Authority of Indicators

24 Pages Posted: 14 Jun 2012

See all articles by Matthias Goldmann

Matthias Goldmann

Max Planck Institute for Comparative Public Law and International Law; Goethe University Frankfurt; EBS Universität für Wirtschaft und Recht; Leibniz Institute for Financial Research SAFE

Date Written: June 13, 2012

Abstract

This paper examines macroprudential stress tests carried out by financial supervisors from a legal perspective. Stress tests are highly contingent because of their use of a number of controversial indicators such as adverse scenarios and risk models. At the same time, they constitute highly effective exercises of public authority. From a public law perspective, this raises their question whether the current legal framework is suitable. In light of the potential of supervisory stress tests to cause externalities and to second-guess financial regulation, the paper argues that supervisory stress tests should be regulated on the international level. The paper makes specific proposals for international legal rules relating to the design and conduct of stress tests as well as their use and follow-up measures.

Keywords: Stress tests, financial regulation, financial supervision, value-at-risk, Basel Accord, indicators, global administrative law, international public authority, public law

Suggested Citation

Goldmann, Matthias, Stress Testing Stress Tests: Challenging the Authority of Indicators (June 13, 2012). Available at SSRN: https://ssrn.com/abstract=2083594 or http://dx.doi.org/10.2139/ssrn.2083594

Matthias Goldmann (Contact Author)

Max Planck Institute for Comparative Public Law and International Law ( email )

Im Neuenheimer Feld 535
69120 Heidelberg, 69120
Germany

HOME PAGE: http://www.mpil.de/ww/en/pub/organization/scientific_staff/mgoldman.cfm

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
HoF H4
Frankfurt, 60629
Germany

HOME PAGE: http://https://www.jura.uni-frankfurt.de/62222403/Goldmann

EBS Universität für Wirtschaft und Recht ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Leibniz Institute for Financial Research SAFE

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

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