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

See all articles by Richard M. Bookstaber

Richard M. Bookstaber

Board of Regents - University of California Office of the CIO

Jill Cetina

Government of the United States of America - Office of Financial Research

Greg Feldberg

Yale University - Yale Program on Financial Stability; Yale School of Management

Mark D. Flood

R. H. Smith School of Business, U. of Maryland

Paul Glasserman

Columbia Business School

Date Written: July 18, 2013

Abstract

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

Bookstaber, Richard M. and Cetina, Jill and Feldberg, Greg and Flood, Mark D. and Glasserman, Paul, Stress Tests to Promote Financial Stability: Assessing Progress and Looking to the Future (July 18, 2013). Journal of Risk Management in Financial Institutions, 7(1), 16-25 (2014 Forthcoming). . Available at SSRN: https://ssrn.com/abstract=2438285

Richard M. Bookstaber

Board of Regents - University of California Office of the CIO ( email )

1111 Broadway
Oakland, CA 94607
United States

Jill Cetina

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Greg Feldberg

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Mark D. Flood (Contact Author)

R. H. Smith School of Business, U. of Maryland ( email )

College Park
College Park, MD 20742
United States

Paul Glasserman

Columbia Business School ( email )

3022 Broadway
403 Uris Hall
New York, NY 10027
United States
212-854-4102 (Phone)
212-316-9180 (Fax)

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