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Stress Testing

Will you pass the stress test?

Increased stress-testing requirements are another striking example of regulatory response to the recent financial crisis. Enhanced stress-testing guidelines were first issued in 2009 with increased focus on credit and liquidity risks. Since then, European Banking Authority stress tests now run annually, complemented by increasing local requirements both for company-wide and specific tests.

Recent Moody’s Analytics Publications

	Macroeconomic Stress Testing Presentation outlining the key risks to the global recovery, linking scenario analysis with risk parameters and reverse stress testing from a macroeconomic viewpoint. This document has been presented at the BBA Stress Testing event on March 30, 2012 in London. Author: Juan Licari and Jose Suarez-Lledo Date: March 19, 2012

	Measuring Sovereign Correlations The sovereign and banking crisis in the euro area is weakening the credit profiles of banks that are exposed to the currency union. As a consequence, European banks face immediate pressures centred on their ability to retain the confidence of investors. In order to help banks face this challenge, Moody's Analytics offer a methodology that leverages the Gcorr (Global Correlations Model) factor structure and forward looking systemic risk measurement and management. This document has been presented at the PRMIA Briefing held in February 2012 in Frankfurt. Author: Christian Thun Date: February 9, 2012

	Measuring Sovereign Default Risk The crisis accentuates several challenges for banks in Europe and elsewhere, including a weakening macroeconomic environment, costly and constrained market funding, pressures on profits and the prospect of governments being less able and willing to support banks over the medium term. Applying a stress test framework to sovereign exposure could be the answer to banks' current challenges. This document has been at the PRMIA briefing held in February 2012 in Stockholm. Author: Christian Thun Date: February 1, 2012

	Measuring and Managing Systemic Risks : An Economic Perspective of Stressed Dynamics The Financial crisis has revealed that market, systems and Financial Institutions have reached an unprecedented reach of interconnectedness, in addition to a lack of indicators and to some extent relevant data for measuring and monitoring systemic risks. How much capital would a firm need if we have another financial crisis ? How much the banking sector could lose if real estate values decline by 20%? What impacts in the financial sector given a possible Sovereign Default ? This presentation will take you through the answers to these questions that have been presented at the PRMIA briefing held early 2012 in Paris. Author: Alexis Hamar Date: January 17, 2012