Stress Tests to Promote Financial Stability: Assessing Progress and Looking to the Future
Journal of Risk Management in Financial Institutions, 7(1), 16-25 (2014 Forthcoming).
Office of Financial Research Working Paper #0010
14 Pages Posted: 19 May 2014
Date Written: July 18, 2013
Stress testing, which has its roots in risk management, should be adapted to support financial stability monitoring and to incorporate the interconnections and dynamics of the financial system. Since the 2008 financial crisis, bank supervisors have honed their financial stability monitoring tools and significantly expanded the use of stress testing in the supervision of the largest financial institutions. This article describes areas in which further research could contribute to the development of best practices in stress testing and how bank supervisory stress tests can be made more useful for macroprudential supervision. We discuss both near-term and longer-term objectives.
Keywords: stress testing, banking supervision, risk management
JEL Classification: G21, G28
Suggested Citation: Suggested Citation