Macroprudential Supervision and Agents’ Information: What Stress Tests Really Tell the Markets
40 Pages Posted: 15 Jul 2020
Date Written: June 17, 2020
Central banks' macro-prudential supervisory activities have to fulfill three distinct tasks:
(i) assessing banking system's vulnerability to exogenous adverse turbulence,
(ii) evaluating the risk of systemic crisis originating from idiosyncratic shocks and
(iii) measuring financial markets' sensitivity to policy stimuli.
Being macro-prudential stress tests the centerpiece of this policy approach a question arises: are they up to the task? Studying how 2011 to 2018 EBA stress tests affected market risk perception, we show that they provided agents with valuable information on the policy stance and on the vulnerability of the banking system, serving their function especially under the second and third dimensions.
Keywords: Disclosure Policy, Macro-prudential Supervision, Risk Assessment, Market Reaction, Stress Tests
JEL Classification: C32, G12, G14, G28
Suggested Citation: Suggested Citation