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 ArticleEBA Welcomes ECA Recommendations for Improving Stress Tests in EU
Next ArticleIASB Issues Updates of Meetings for April 2019
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.