A Comprehensive Framework for Quantitative Stress Tests in Financial Institutions

2013 ◽  
Author(s):  
Yasushi Takano ◽  
Jiro Hashiba ◽  
Rintaro Anraku ◽  
Ryuichi Sato ◽  
Sakae Mizuki ◽  
...  
Keyword(s):  
Financial Institutions ◽  
Stress Tests ◽  
Comprehensive Framework ◽  
Quantitative Stress

scholarly journals Islamic Financial Services Act (IFSA) 2013 and the Sharīʿah-compliance requirement of the Islamic finance industry in Malaysia

2018 ◽  
Vol 10 (1) ◽  
pp. 94-101 ◽  
Author(s):  
Mohamad Akram Laldin ◽  
Hafas Furqani
Keyword(s):  
Content Analysis ◽  
Financial Institutions ◽  
Financial Services ◽  
Design Methodology ◽  
Islamic Finance ◽  
Content Type ◽  
Governance Framework ◽  
Finance Industry ◽  
Islamic Financial Institutions ◽  
Comprehensive Framework

Purpose This paper aims to observe the development of the Sharīʿah governance framework (SGF) and practice in Islamic financial institutions (IFIs) in Malaysia. Design/methodology/approach The study is a qualitative-based research. It uses various documents and content analysis approach to understand and analyze the structure, process and practice of SGF in IFIs in Malaysia. Findings It is found that the Central Bank of Malaysia, Bank Negara Malaysia, has attempted to develop a comprehensive framework of Sharīʿah governance for IFIs in Malaysia. The framework governs the practice of the industry, covers stakeholders’ scope of duties and responsibilities and provides details on processes and procedures in the operations of IFIs to achieve the objective of Sharīʿah compliance. To maintain the relevance of the SGF to the needs of the industry, the framework has also been updated recently in 2017. The amendments aim to strengthen the effectiveness of Sharīʿah governance implementation within the Islamic finance industry. Originality/value This study attempts to comprehensively examine the evolution of the SGF Sharīʿah governance framework for IFIs in Malaysia. The Malaysian model of the SGF is unique and could be emulated by other countries in developing the Islamic finance industry in their respective jurisdictions.

scholarly journals How to measure interconnectedness between banks, insurers and financial conglomerates

2016 ◽  
Vol 33 (3-4) ◽  
Author(s):  
Gaël Hauton ◽  
Jean-Cyprien Héam
Keyword(s):  
Size Effect ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Insurance Companies ◽  
Stress Tests ◽  
Financial Conglomerates ◽  
The Core

AbstractFinancial institutions’ interconnectedness is a key component of systemic risk. However there is still no consensus on its measurement. Using a unique database of network of exposures of French financial institutions, we compare three strategies to measure interconnectedness: closeness of exposure distributions, identification of core-periphery structure and contagion models. The closeness of exposure distributions is adequate to identify outlier institutions. The “core-periphery” structure, usually applied to banking network, is still valid with insurance companies. However this approach is not immune to size effect. This result contrasts with previous analyses where size was not accounted for. Contagion-based stress-tests are the best suited to capture institutions’ systemic fragility, emphasizing their importance as a supervisory tool.

scholarly journals Narrating imagined crises: Stress tests, post-crisis regulation, and cultural reform in banking

2017 ◽  
Author(s):  
Nathan Coombs ◽  
John Hogan Morris
Keyword(s):  
Financial Crisis ◽  
Financial Institutions ◽  
Stress Testing ◽  
Critical Evaluation ◽  
Stress Tests ◽  
Cultural Reform ◽  
Regulatory Response ◽  
Governance Practices ◽  
Narrative Account ◽  
Missed Opportunity

The scholarly consensus is that the regulatory response to the 2007-9 financial crisis has proven a historic missed opportunity for bringing about transformative reforms. This article argues that the critical evaluation risks missing how regulators’ new tools and procedures are helping them to improve the governance of financial institutions. The focus is on the most significant novelty of the post-crisis period: regulatory stress testing. Guided by 13 interviews with regulators and financial practitioners involved in the Bank of England’s stress tests, the article addresses its ‘qualitative review’ component, which informs the supervision of the UK’s largest bank holding groups. Our findings suggest that the requirement for banks to provide a narrative account of their modelling and governance practices is changing those practices and also weakening the boundaries between banks’ epistemic subcultures. We then reflect on how the pushback against the tests points to the limits of Jens Beckert’s theorisation of the politics of expectations and requires scholars to evaluate judiciously post-crisis regulatory reforms.

Macrofinancial Stress Testing - Principles and Practices

Policy Papers ◽  
2012 ◽  
Vol 2012 (68) ◽  
Author(s):  
Keyword(s):  
Crisis Management ◽  
Financial Institutions ◽  
Stress Testing ◽  
The Other ◽  
Trial And Error ◽  
Stress Tests ◽  
Management Tools ◽  
Testing Practices ◽  
Recent Financial Crisis ◽  
Intense Debate

The recent financial crisis drew unprecedented attention to the stress testing of financial institutions. On one hand, stress tests were criticized for having missed many of the vulnerabilities that led to the crisis. On the other, after the onset of the crisis, they were given a new role as crisis management tools to guide bank recapitalization and help restore confidence. This spurred an intense debate on the models, underlying assumptions, and uses of stress tests. Current stress testing practices, however, are not based on a systematic and comprehensive set of principles but have emerged from trial-and-error and often reflect constraints in human, technical, and data capabilities.

scholarly journals The safety network system and prospects for the appearance of a financial crisis in Bosnia and Herzegovina

2008 ◽  
Vol 53 (178-179) ◽  
pp. 198-229
Author(s):  
Novo Plakalovic
Keyword(s):  
Financial Crisis ◽  
Bosnia And Herzegovina ◽  
Financial Institutions ◽  
Banking Sector ◽  
Financial Sector ◽  
Bank Capital ◽  
Stress Tests ◽  
Foreign Countries ◽  
Potential Risks ◽  
High Level

The article is on the system of the safety network of the financial sector in Bosnia and Herzegovina (BH) and potential causes of possible financial instability. The network of protection of financial institutions in BH is to a certain extent incomplete but a high level of regulatory and supervisory activities has been present so far, which effects the expressed stability of financial institutions. Potential risks and the vulnerability of the financial system arise from a range of features which are characteristic of the local financial institutions, their activities, the condition of the BH economy, and macroeconomic stability and flows of goods and capital between the country and foreign countries. The sector of financial institutions has been privatized and it is in foreign ownership. Foreign exposure of domestic economy and financial markets is limited to only a small number of countries (Austria, Germany). There are pressures in respect of the increased rates of return on bank capital and there is a very high dynamic of credit growth. Possible unfavourable scenarios could bring about problems in the banking sector, which is shown by stress tests. The deterioration of the macroeconomic imbalance could also be a significant cause of serious problems in the local financial sector. There are no certain indicators that this could happen in the near future and influence the appearance of a financial crisis; however, such a situation cannot be ruled out.

scholarly journals Market risk stress testing for internationally active financial institutions

2011 ◽  
Vol 56 (188) ◽  
pp. 62-90 ◽  
Author(s):  
Petar Markovic ◽  
Branko Urosevic
Keyword(s):  
Financial Institutions ◽  
Stress Testing ◽  
Stress Test ◽  
Data Gathering ◽  
Market Risk ◽  
Case Scenario ◽  
Worst Case ◽  
Thomson Reuters ◽  
Comprehensive Framework

The paper develops a comprehensive framework for market risk stress testing in internationally active financial institutions. We begin by defining the scope and type of the stress test and explaining how to select risk factors and the stress time horizon. We then address challenges related to data gathering, followed by in-depth discussion of techniques for developing realistic shock scenarios. Next the process of shock application to a particular portfolio is described, followed by determination of portfolio profit and loss. We conclude by briefly discussing the issue of assigning probability to stress scenarios. We illustrate the framework by considering the development of a ?worst case? scenario using global financial market data from Thomson Reuters Datastream.

The Global Economy

2020 ◽  
pp. 197-217
Author(s):  
Barbara Keys ◽  
Til Schuermann
Keyword(s):  
Financial Institutions ◽  
Financial Crises ◽  
Global Economy ◽  
Financial System ◽  
Psychological Resilience ◽  
Stress Tests ◽  
Government Officials ◽  
The Past ◽  
Shock Absorbers ◽  
Global Financial System

This chapter begins by exploring some of the most upsetting financial crises in recent memory and then proposes potential “shock absorbers” for the global financial system. Greater globalization and built-in redundancies are needed if we want to avoid replicating the problems of the past, and psychological resilience is required to navigate future problems. The authors propose synthetic and invasive stress tests of current financial institutions to identify possible instigators or fissure points for future financial crises, and they urge government officials to publicly acknowledge that some financial crises may be unavoidable. These mechanisms cannot completely eliminate crises, but they can better prepare the system for recovery.

scholarly journals Liquidity at Risk

2020 ◽  
Vol 20 (82) ◽  
Author(s):  
Rama Cont ◽  
Artur Kotlicki ◽  
Laura Valderrama
Keyword(s):  
At Risk ◽  
Financial Institutions ◽  
Stress Testing ◽  
Financial Institution ◽  
Traditional Approach ◽  
Capital Adequacy ◽  
Stress Tests ◽  
Joint Stress ◽  
Liquidity Shocks ◽  
The Impact

The traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests have been applied in parallel to and independently from solvency stress tests, based on scenarios which may not be consistent with those used in solvency stress tests. We propose a structural framework for the joint stress testing of solvency and liquidity: our approach exploits the mechanisms underlying the solvency-liquidity nexus to derive relations between solvency shocks and liquidity shocks. These relations are then used to model liquidity and solvency risk in a coherent framework, involving external shocks to solvency and endogenous liquidity shocks arising from these solvency shocks. We define the concept of ‘Liquidity at Risk’, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs. The approach described in this study provides in particular a clear methodology for quantifying the impact of economic shocks resulting from the ongoing COVID-19 crisis on the solvency and liquidity of financial institutions and may serve as a useful tool for calibrating policy responses.

Trading in Islam: Shari‟ah Rules and Contemporary Applications in Islamic Financial Transactions

2014 ◽  
Vol 2 (2) ◽  
pp. 41
Author(s):  
Syed Faiq Najeeb
Keyword(s):  
Financial Institutions ◽  
Islamic Law ◽  
Financial Industry ◽  
Secondary Sources ◽  
Critical Issues ◽  
Islamic Financial Institutions ◽  
Comprehensive Framework ◽  
Financial Transactions ◽  
Industry Needs ◽  
General Conditions

This paper attempts to comprehensively highlight the various Islamic laws and guidelines which govern contracts of exchange involving selling of goods and trading of debts. Muslim jurists have extensively researched, reasoned and deliberated over centuries in order to compile a comprehensive framework of principles Muslims are required to adhere to when engaging in selling of goods and trading of debts. This compilation is based on the rulings derived from the Quran and Sunnah and other secondary sources of Islamic law. The paper introduces the readers to various categories of exchange contracts and examines the elements which may render them valid or void along with details on the general conditions and prohibitions in Islam when it comes to trading. More importantly, the paper discusses the contemporary applications of these contracts in the modern Islamic financial industry and apprises the readers of the current Shari‟ah issues and challenges being faced by the Islamic financial institutions. The paper also highlights critical issues which the Islamic financial industry needs to overcome to sustain its tremendous growth along with a few recommendations for the industry to improve its practices in future.

Algorithms Could Replace Stress Tests

2005 ◽  
Vol 35 (13) ◽  
pp. 18
Author(s):  
SHERRY BOSCHERT
Keyword(s):  
Stress Tests
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