Stress-testing

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Federal Reserve Supervisory Assessment of Capital Planning by Large and Complex Firms

FRB guideline consolidates capital planning expectations for large and complex bank holding companies

US Federal Reserve Board guidelines sets out supervisory expectations for capital planning at large and complex bank holding companies and intermediate holding companies of foreign banking organizations. Consolidates the Federal Reserve's existing capital planning guidance. Outlines capital planning expectations for: i) governance; ii) risk management; iii) internal controls; iv) capital policy; v) scenario design; and vi) projection methodologies.

Publisher: National Regulators Release date: Dec 2015 Country: United States

Type: Guideline

Topics: Capital adequacy, Stress-testing, Corporate governance

Sectors: Banking

Recovery Planning Scenarios

EBA comparative report on approach taken on recovery plan scenarios

European Banking Authority benchmarking report on how scenarios included in EU recovery plans have been developed so far. The objective of including scenarios in a recovery plan is to help assess whether the institution's recovery options are robust enough to cope with a wide range of severe shocks, and whether its recovery indicators and trigger levels are appropriate and timely for these options to be executed. Areas for improvement include relevance and severity of scenarios and their impact on relevant recovery indicators. Comparison analysis should be beneficial to credit institutions in identifying best practices and their positioning in relation to peers, ultimately contributing to ensuring that their approach to scenarios is correctly addressed in development of recovery plans.

Publisher: Regional Standard-Setting Bodies Release date: Dec 2015

Type: Implementation

Parent: Bank Recovery and Resolution Directive (BRRD)

Peer: Recovery Planning, Comparative Report on the Approach to Determining Critical Functions and Core Business Lines in Recovery Plans

Topics: Recovery and resolution, Stress-testing

Sectors: Banking, Securities

Stress Testing Banks: Whence and Whither?

FDIC overview of recent practice of stress testing focuses on capital adequacy

Federal Deposit Insurance Corporation discussion paper argues that stress testing has been successfully used to: i) mitigate bank opacity; ii) quantify systemic risk under extreme but plausible stress; iii) keep banks mindful of severely adverse shocks, thereby mitigating "disaster myopia" and concomitant financial instability; and iv) improve data collection and analytical capabilities of financial institutions. Proposes several modifications of current stress-testing practice.

Publisher: National Regulators Release date: Nov 2015 Country: United States

Type: Consultative, discussion and issues paper

Topics: Capital adequacy, Stress-testing

Sectors: Banking

Making Supervisory Stress Tests More Macroprudential: Considering Liquidity and Solvency Interactions and Systemic Risk

BCBS working paper on incorporating liquidity effects and their interaction with solvency into stress test models

Basel Committee on Banking Supervision consultation on approaches to improve stress tests by incorporating liquidity effects and their interactions with solvency, interlinkages in the banking system, and the way banks' behaviour may prove destabilizing. Focuses on three key areas: i) considering channels in addition to the standard credit channel through which shocks can be transmitted and evaluating liquidity and solvency interactions; ii) analysis of interactions between liquidity and solvency risks using both regulatory and market-based measures to improve stress testing models for individual banks; and iii) network analysis and agent-based models for broadening stress tests.

Publisher: Global Standard-Setting Bodies Release date: Nov 2015

Type: Consultative, discussion and issues paper

Parent: Liquidity Stress Testing: A Survey of Theory, Empirics and Current Industry and Supervisory Practices

Topics: Stress-testing, Systemic risk, Liquidity risk and rules, Macroprudential

Sectors: Banking, Securities

Approach to Stress Testing the UK Banking System

BOE document sets out the main features of its stress-testing framework to 2018

Bank of England's aim over next three years is to i) develop a stress testing approach that is explicitly countercyclical with severity of the test and associated regulatory capital buffers varying systematically with state of the financial cycle; ii) improve consistency between the stress test and the overall capital framework including by ensuring systemically important banks are held to higher standards, and; iii) enhance its own modeling capability while ensuring participating banks play a key role in producing their own projections of the impact of the stress. Key features of the approach include: i) an annual stress test of banks each year using a scenario whose severity will reflect policymakers’ assessment of the state of the financial cycle; ii) every other year a second scenario will explore a wider range of risks to financial stability; iii) an integrated framework for deliberations and decisions on setting capital buffers for the system and individual banks; and, iv) a framework for determining whether individual banks need to strengthen their capital including a ‘hurdle rate’ framework that aligns with the overall capital framework.

Publisher: National Regulators Release date: Oct 2015 Country: United Kingdom

Type: Consultative, discussion and issues paper

Topics: Stress-testing, Capital adequacy, Macroprudential, Systemically important financial institutions (SIFIs)

Sectors: Banking

Designing Effective Macroprudential Stress Tests: Progress So Far and the Way Forward

IMF working paper on means to give stress tests a more macroprudential perspective

International Monetary Fund working paper sets out how to give stress tests a macroprudential perspective: i) incorporate general equilibrium dimensions, so that outcome of test depends not only on size of shock and buffers of individual institutions but also on behavioral responses and interactions with each other and with other economic agents; and (ii) focus on resilience of system as a whole. Macroprudential stress tests should not be used in isolation but be treated as complements to other tools and be combined with microprudential perspectives.

Publisher: International Organizations Release date: Jun 2015

Type: Consultative, discussion and issues paper

Topics: Macroprudential, Stress-testing, Systemic risk

Sectors: Banking

Thematic Review on Supervisory Frameworks and Approaches for SIBs

FSB peer review of national authorities’ implementation of recommendations for more effective supervision of SIBs.

Financial Stability Board review assesses progress towards implementing improved supervisory effectiveness for systemically important banks (SIBs), in particular G-SIBs. Examines key changes made in supervisory frameworks and approaches for SIBs, and highlights where new practices and tools can lead to more effective supervision. Sets out recommendations to improve and assess supervisory effectiveness and foster greater cross-border supervisory cooperation and coordination.

Publisher: Global Standard-Setting Bodies Release date: May 2015

Type: Implementation

Topics: Systemically important financial institutions (SIFIs), Supervisory framework, Corporate governance, Cross-border cooperation, Stress-testing, Recovery and resolution

Sectors: Banking, Securities

Joint Committee Report on Securitisation

EBA, ESMA, and EIOPA review of existing legal and regulatory framework for securitizations and recommendations to support redevelopment of the market

Joint Committee of European Supervisory Authorities (the European Securities and Markets Authority (ESMA), Banking Authority (EBA) and Insurance and Occupational Pensions Authority (EIOPA)) report on Structured Finance Instruments (SFIs) addressing: i) the nature and content of investor due diligence requirements and issuer, originator and sponsor disclosure requirements; ii) the parties to which the due diligence and disclosure requirements apply; and iii) the methods used for the adequate disclosure, reporting and enforcement in cases of noncompliance. Main recommendations are that: i) due diligence requirements be harmonized within the EU; ii) standardized investor reports reflect the dynamics of SFIs and be stored in a centralized public space; iii) all type of investors be empowered to effectively conduct their own stress tests; and iv) harmonized due diligence and disclosure framework be complemented with a comprehensive regime for supervision and enforcement.

Publisher: Regional Standard-Setting Bodies Release date: May 2015

Type: Consultative, discussion and issues paper

Topics: Securitization, Supervisory framework, Stress-testing

Sectors: Banking, Securities

Stress Testing the UK Banking System: Guidance on the Traded Risk Methodology

BOE guidance on approach banks are to take in 2015 stress test in respect of trading positions.

Bank of England guidance describes approach banks are expected to take in execution of 2015 Bank of England stress test of UK banking system in respect of trading positions. Describes: i) overall approach banks should adopt in execution of traded risk stress test; ii) how stress and baseline scenarios should be translated into specific loss numbers and financial metrics reported via templates; and iii) certain important terms and concepts that are used in templates in context of methodology that should be applied.

Publisher: National Regulators Release date: Apr 2015 Country: United Kingdom

Type: Supervisory Practice

Peer: Bank of England’s Approach to Stress Testing the UK Banking System

Topics: Stress-testing, Capital adequacy

Sectors: Banking, Securities

International Activities: How Canada Plays its Part

Remarks by Superintendent of Financial Institutions Jeremy Rudin to the International Finance Club of Montréal

Sets out views of Office of the Superintendent of Financial Institutions (OSFI) of Canada on strengthened bank capital requirements under Basel III, use of internal risk measurement models, usefulness of leverage ratios and stress tests, new Total Loss Absorbing Capacity (TLAC) requirements, new capital standards for insurers, and international and domestic regulatory cooperation.

Publisher: National Regulators Release date: Mar 2015 Country: Canada

Type: Consultative, discussion and issues paper

Topics: Capital adequacy, Stress-testing, Cross-border cooperation

Sectors: Banking, Insurance

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Resources

382 records

Federal Reserve Supervisory Assessment of Capital Planning by Large and Complex Firms

Recovery Planning Scenarios

Stress Testing Banks: Whence and Whither?

Making Supervisory Stress Tests More Macroprudential: Considering Liquidity and Solvency Interactions and Systemic Risk

Approach to Stress Testing the UK Banking System

Designing Effective Macroprudential Stress Tests: Progress So Far and the Way Forward

Thematic Review on Supervisory Frameworks and Approaches for SIBs

Joint Committee Report on Securitisation

Stress Testing the UK Banking System: Guidance on the Traded Risk Methodology

International Activities: How Canada Plays its Part

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