IMF Paper Examines Macro-Prudential Policy Frameworks Worldwide
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
Featured Experts
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Nihil Patel
Data scientist; SaaS product designer; credit portfolio analyst and product strategist; portfolio modeler; correlation researcher
Related Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards