The Need for 'Un-Consolidating' Consolidated Banks' Stress Tests

22 Pages Posted: 18 Jan 2013

See all articles by Eugenio Cerutti

Eugenio Cerutti

International Monetary Fund (IMF); Johns Hopkins University

Christian Schmieder

International Monetary Fund (IMF)

Date Written: December 2012


The recent crisis has spurred the use of stress tests as a (crisis) management and early warning tool. However, a weakness is that they omit potential risks embedded in the banking groups™ geographical structures by assuming that capital and liquidity are available wherever they are needed within the group. This assumption neglects the fact that regulations differ across countries (e.g., minimum capital requirements), and, more importantly, that home/host regulators might limit flows of capital or liquidity within a group during periods of stress. This study presents a framework on how to integrate this risk element into stress tests, and provides illustrative calculations on the size of the potential adjustments needed in the presence of some limits on intragroup flows for banks included in the June 2011 EBA stress tests.

Keywords: Stress testing, International banks, Banking sector, Cross-border banking, Stability, Ring-fencing, Subsidiaries, banking, subsidiaries, capital adequacy, bank data, banking system, excess liquidity, bank subsidiaries, banking sector, bank size, bank regulators, capital needs, banking supervision, banking stability, bank capital, bank solvency, tier 1 capital, banking authority, capital ratio, bank groups, capital market, capital markets, bank profit, bank structures, bank of international settlements, national bank, flows of capital, financial risk, bankers, bank structure, subordinated debt, banking operations, bank group, bank losses, bank activities, capital adequacy ratios, banks balanc

JEL Classification: F34, F36, G15, G21, G28

Suggested Citation

Cerutti, Eugenio and Schmieder, Christian, The Need for 'Un-Consolidating' Consolidated Banks' Stress Tests (December 2012). IMF Working Paper No. 12/288, Available at SSRN:

Eugenio Cerutti (Contact Author)

International Monetary Fund (IMF) ( email )

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

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

Christian Schmieder

International Monetary Fund (IMF) ( email )

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

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