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    BIS Papers Related to Macro-Prudential Policy and Stress Testing

    February 19, 2020

    BIS published a collection of six papers that were prepared as part of a BIS research protocol project on measuring the effectiveness of macro-prudential policies using supervisory bank-level data for five Asia-Pacific central banks. These central banks are BI from Indonesia, BOT from Thailand, BSP from Philippines, RBA from Australia, and RBNZ from New Zealand. BIS also published a report that examines how major Latin American central banks conduct and use stress tests in assessing the soundness of their banking systems.

    Measuring the Effectiveness of Macro-Prudential Policies—Each central bank developed its own analysis, following the methodology from the protocol to enhance the comparability of the results. Preliminary results were presented in two Asian Research Network workshops held in New Zealand and Australia, respectively. Taking into account the comments from the two workshops, the authors of the five country papers finalized them in September 2019. This volume consists of the five country papers and a paper that summarizes the results using meta-analysis techniques. The results show that macro-prudential policy actions taken by the five countries (Australia, Indonesia, New Zealand, the Philippines, and Thailand) are largely effective in reducing excessive household credit growth and that tightening actions have a stronger effect than easing actions. The study also finds that macro-prudential policy is effective in reducing bank risk as measured by the nonperforming loan (NPL) ratio. Each paper further develops the country-specific analysis, including a narrative specific to their national experience.

    Report on Stress Testing in Latin America—The report is based on the information gathered by a study group on stress testing that was formed by the Consultative Group of Directors of Financial Stability and comprises selected central banks in the Americas. Methodologies are compared with the help of a common stress-testing exercise run by the central banks participating in the study group. In general, central banks use top-down solvency tests to assess similar risks, but their tests differ, among other things, in the severity of assumed scenarios, assumptions about bank reaction to shocks, data granularity, and how banking indicators are calculated (as countries follow different Basel standards). As highlighted by the common exercise, differences across tests can lead to very dissimilar results and policy implications. The report also discusses how stress tests are communicated. Most central banks make stress tests public, but usually only disclose aggregate results. Furthermore, central banks do not normally measure the effectiveness of communication since stress tests are not commonly used as a policy tool.

     

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    Keywords: Asia Pacific, Americas, Latin America, Australia, Thailand, Indonesia, Philippines, New Zealand, Banking, Macro-Prudential Policy, NPLs, Research, BIS

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