IMF published a working paper on a study looking for robust and implementable framework for macro-prudential stress tests and policies. This report summarizes the findings of a joint research effort by Monetary and Capital Markets Department and the Systemic Risk Center.
The report presents state-of-the-art approaches on macro-prudential stress testing, including modeling and implementation challenges. It also provides a roadmap for future research and discusses the potential uses of macro-prudential stress testing to support policy. A table at the end of the report lists and summarizes the macro-prudential tools in use being used in various countries (refer to Table 1). Another table examines the design of stress testing frameworks of EU, IMF, UK, United States, Canada, Singapore, Bank of Japan, Bank of Korea, and Norges Bank (refer to Table 2).
Macro-prudential stress tests can offer quantitative, forward-looking assessments of the resilience of financial systems as a whole, to particularly adverse shocks. Therefore, they are well-suited to support the surveillance of macro-financial vulnerabilities and to inform the use of macro-prudential policy instruments. The report argues that it would be useful for authorities to adopt a structured yet flexible approach to stress testing for macro-prudential purposes. Such an approach can employ a number of separate models as part of the analysis. The report also concludes that there needs to be accountability for those in charge of formulating macro-prudential policy to the broader policymaking authorities. Also, there needs to be a clear policy on the delicate issue of transparency of stress testing results. There are costs and benefits of communicating stress test results and this involves weighing possible effects on operations of individual institutions versus the system, perception of risks at different times of the cycle, and consequences for risk-sharing within the system.
Related Link: Report
Keywords: International, Banking, Macro-prudential Policy, Stress Testing, Systemic Risk, IMF
Previous ArticleUS Agencies Reaffirm the Role of Supervisory Guidance
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.
EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).
As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.
RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.
ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).