Stress Testing of Banks: An Introduction

14 Pages Posted: 8 Nov 2016

See all articles by Kieran Dent

Kieran Dent

Bank of England

Ben Westwood

Bank of England

Miguel Segoviano Basurto

International Monetary Fund (IMF) - Monetary and Financial Systems Department

Date Written: September 21, 2016

Abstract

The usage and prominence of bank stress tests has risen substantially in the years following the global financial crisis. They are now established as a key part of the bank regulation toolkit.

Typically, bank stress tests measure the resilience of banks to hypothetical adverse scenarios like severe recessions, with results used by central banks and regulators to measure risks and manage them through the setting of prudential policy. Over time, to enhance their usefulness to policymakers, stress tests are likely to develop further, for example by testing banks against a wider range of resilience metrics than capital, and further exploring how stresses might be transmitted across the financial system (e.g. through contagion).

Suggested Citation

Dent, Kieran and Westwood, Ben and Segoviano Basurto, Miguel, Stress Testing of Banks: An Introduction (September 21, 2016). Bank of England Quarterly Bulletin 2016 Q3. Available at SSRN: https://ssrn.com/abstract=2866325

Kieran Dent (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ben Westwood

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Miguel Segoviano Basurto

International Monetary Fund (IMF) - Monetary and Financial Systems Department ( email )

Washington, DC
United States

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