Transparency and Model Evolution in Stress Testing

32 Pages Posted: 7 Aug 2019

See all articles by Mark J. Flannery

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Date Written: August 3, 2019

Abstract

Bank stress tests must be revisable in order to cope with new, emerging risks in the financial sector. Some of these revisions will likely involve model parameters, in addition to the macro-variable shocks that have been applied heretofore. The potential for such revisions would be handicapped by making the test models fully transparent to the public. This tension makes it inadvisable to share model parameters widely if the stress tests are to remain an informative component of the supervisory system for large banks.

Keywords: stress tests, policy transparency, model flexibility

JEL Classification: G21, G01

Suggested Citation

Flannery, Mark Jeffrey, Transparency and Model Evolution in Stress Testing (August 3, 2019). Available at SSRN: https://ssrn.com/abstract=3431679 or http://dx.doi.org/10.2139/ssrn.3431679

Mark Jeffrey Flannery (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

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