A New Model for Bank Stress Tests

Columbia Law School Blue Sky Blog, January 26, 2017

2 Pages Posted: 4 Jan 2019

See all articles by Margaret Ryznar

Margaret Ryznar

Indiana University Robert H. McKinney School of Law

Michael Jacobs

Accenture Consulting

Date Written: January 2017

Abstract

This Columbia Law School Blue Sky Blog post advocates for the introduction of a Bayesian model that takes into account prior inputs in bank stress testing. Specifically, the priors would be the previous Federal Reserve adverse scenarios. Failure to consider these prior scenarios could underestimate by as much as 25 percent a bank’s loan losses in an adverse economic scenario. This could be the difference between passing and failing a stress test.

Keywords: stress testing, Dodd Frank, banks, regulation

JEL Classification: G10

Suggested Citation

Ryznar, Margaret and Jacobs, Michael, A New Model for Bank Stress Tests (January 2017). Columbia Law School Blue Sky Blog, January 26, 2017 . Available at SSRN: https://ssrn.com/abstract=3160472 or http://dx.doi.org/10.2139/ssrn.3160472

Margaret Ryznar (Contact Author)

Indiana University Robert H. McKinney School of Law ( email )

530 West New York Street
Indianapolis, IN 46202
United States

Michael Jacobs

Accenture Consulting ( email )

1345 Avenue of the Americas
New York, NY 10105
United States
9173242098 (Phone)

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