scholarly journals Deconstructing Systemic Risk: A Reverse Stress Testing Approach

2021 ◽  
Author(s):  
Javier Ojea Ferreiro
Keyword(s):  
Systemic Risk ◽  
Stress Testing ◽  
Testing Approach

scholarly journals Validation of default probability models: A stress testing approach

2016 ◽  
Vol 47 ◽  
pp. 70-85 ◽  
Author(s):  
Fábio Yasuhiro Tsukahara ◽  
Herbert Kimura ◽  
Vinicius Amorim Sobreiro ◽  
Juan Carlos Arismendi Zambrano
Keyword(s):  
Stress Testing ◽  
Default Probability ◽  
Probability Models ◽  
Testing Approach

scholarly journals A Globally Consistent Stress Testing Approach

2019 ◽  
Vol 4 (3) ◽  
pp. p153
Author(s):  
Colin Ellis
Keyword(s):  
Stress Testing ◽  
Expected Shortfall ◽  
Data Availability ◽  
Rank Ordering ◽  
Testing Approach ◽  
Bank Solvency ◽  
High Level ◽  
Loan Losses ◽  
Compare And Contrast ◽  
Expected Outcomes

This paper describes an approach for stress testing banks that is consistent across economies and geographies, in contrast to common “macro scenario” driven approaches. The latter would require economic scenarios to be both equally likely (in a probabilistic sense) and equally stressful (in a conditional loss sense) across countries in order to be comparable. The paper proposes a three-pronged approach for stressing bank solvency, which incorporates recalibrating pre-crisis Basel capital assumptions, adapting the BIS “expected shortfall” approach for securities, and using granular data for income haircuts. Loan losses are quantified using a simple “multiples” approach, starting from expected outcomes, which is derived from the pre-crisis Basel technical proposal. The approach is practical, can be more granular or conducted at a high level, depending on data availability, and offers a simple way for regulators, investors or risk assessors to compare and contrast stresses in different banking systems. Of the eight bank defaults recorded globally during 2017, this approach would have given a better “rank ordering” for seven of them, indicating the approach adds value to traditional solvency metrics.

Systemic Risk, Stress Testing, and Financial Contagion

2014 ◽  
pp. 282-310
Author(s):  
Calixto Lopez-Castañon ◽  
Serafin Martinez-Jaramillo ◽  
Fabrizio Lopez-Gallo
Keyword(s):  
Systemic Risk ◽  
Research Agenda ◽  
Stress Testing ◽  
Risk Measures ◽  
Banking System ◽  
Financial Contagion ◽  
Interbank Market ◽  
Coherent Risk ◽  
Central Bankers ◽  
Standard Risk

Despite the acknowledgment of the relevance of Systemic Risk, there is a lack of consensus on its definition and, more importantly, on the way it should be measured. Fortunately, there is a growing research agenda and more financial regulators, central bankers, and academics have recently been focusing on this field. In this chapter, the authors obtain a distribution of losses for the banking system as a whole. They are convinced that such distribution of losses is the key element that could be used to develop relevant measures for systemic risk. Their model contemplates several aspects, which they consider important regarding the concept of systemic risk: an initial macroeconomic shock, which weakens some institutions (some of them to the point of failure), a contagion process by means of the interbank market, and the resulting losses to the financial system as a whole. Finally, once the distribution is estimated, the authors derive standard risk measures for the system as a whole, focusing on the tail of the distribution (where the catastrophic or systemic events are located). By using the proposed framework, it is also possible to perform stress testing in a coherent way, including second round effects like contagion through the interbank market. Additionally, it is possible to follow the evolution of certain coherent risk measures, like the CVaR, in order to evaluate if the system is becoming more or less risky, in fact, more or less fragile. Additionally, the authors decompose the distribution of losses of the whole banking system into the systemic and the contagion elements and determine if the system is more prone to experience contagious difficulties during a certain period of time.

scholarly journals Evaluating illiquidity and systemic contagion in South African banks

2014 ◽  
Vol 7 (3) ◽  
pp. 697-720
Author(s):  
Dirk Visser ◽  
Gary Van Vuuren
Keyword(s):  
South African ◽  
Emerging Economies ◽  
Systemic Risk ◽  
Stress Testing ◽  
Feedback Effects ◽  
Testing Model ◽  
Banking Systems

A stress-testing model to evaluate liquidity and systemic risk in banks of developed and emerging economies has been assembled and tested. The Liquidity Stress Tester model (LST) was applied to Dutch and UK markets during crisis and non-crisis periods in previous research – here it is applied to South African banks. The flexibility and adaptability of the LST allows different banking systems and reactions of system participants to be evaluated comprehensively. Feedback effects arising from bank reactions to severely stressed haircuts and increases in systemic risk caused by reputation degradation are considered, as is the effect of enhanced contagion from other banks. 

Sign in / Sign up

Export Citation Format

Share Document