Stress-testing

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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

Scenarios for the European Insurance and Occupational Pensions Authority’s EU-Wide Pension Fund Stress Test in 2015

ESRB macro-financial scenarios for EU-wide stress test for defined benefit pension funds

European Systemic Risk Board macro-financial scenarios for EU-wide stress test for defined benefit pension funds. Scenarios include identified risks and vulnerabilities, the underlying economic narrative and calibrated shocks to key financial market variables. Scenarios are intended to inform harmonized valuation of defined benefit pension funds under so-called holistic balance sheet approach.

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

Type: Standard

Topics: Stress-testing

Sectors: Pensions

Stress Testing the UK Banking System: Key Elements of the 2015 Stress Test

BOE 2015 stress test framework

Bank of England outlines the two core elements of its 2015 stress test: i) scenarios to be explored by the exercise, including stress and baseline scenarios; and ii) standards, or 'hurdle rates,' against which banks will be assessed. The severity of the stress scenario and hurdle rate framework are key determinants of the resilience standard that the UK banking system is being held to through the stress test.

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

Type: Consultative, discussion and issues paper

Topics: Stress-testing, Capital adequacy

Sectors: Banking

Stress Testing the UK Banking System: 2014 Results

BOE report on results of first stress test of UK banking system

Bank of England report on results of first concurrent stress test of UK banking system, which was built on common, EU-wide exercise coordinated by the European Banking Authority (EBA). Test covered eight major UK banks and building societies and assessed impact of a variant of the EU-wide stress scenario on end-2013 balance sheets. Explored vulnerabilities stemming from UK household sector in particular, reflecting the Financial Policy Committee’s (FPC’s) assessment of main domestic risks to financial stability. Key judgments to arrive at final projections were taken by BOE staff, under guidance of the FPC and the Prudential Regulation Authority (PRA) Board. Bank-specific results have been approved by the PRA Board.

Publisher: National Regulators Release date: Dec 2014 Country: United Kingdom

Type: Consultative, discussion and issues paper

Topics: Stress-testing, Macroprudential, Capital adequacy

Sectors: Banking

Regulation and Supervision of Domestic Systemically Important Banks in Nigeria

CBN and NDIC regulatory and supervisory framework for systemically important banks

Central Bank of Nigeria and Nigeria Deposit Insurance Corporation framework specifies assessment methodology for identifying systemically important banks, higher loss absorbency (capital) and additional regulatory requirements such as liquidity, stress testing, disclosure and reporting as well as enhanced supervision requirements.

Publisher: National Regulators Release date: Sep 2014 Country: Nigeria

Type: Law, Regulation and Policy

Parent: BCBS Framework for Dealing with Domestic Systemically Important Banks

Topics: Capital adequacy, Systemically important financial institutions (SIFIs), Liquidity risk and rules, Stress-testing, Transparency and disclosure, Recovery and resolution

Sectors: Banking

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Resources

382 records

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

Scenarios for the European Insurance and Occupational Pensions Authority’s EU-Wide Pension Fund Stress Test in 2015

Stress Testing the UK Banking System: Key Elements of the 2015 Stress Test

Stress Testing the UK Banking System: 2014 Results

Regulation and Supervision of Domestic Systemically Important Banks in Nigeria

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