Press Release No. 14/503

Press Release: IMF Publishes Book on Staff Stress Testing Models and Makes Available Toolkits to Check Health of Financial Institutions and Systems

November 7, 2014

The global financial crisis has put a spotlight on the stress testing of individual financial institutions and entire financial systems. Stress testing is a “what if” exercise to determine whether these institutions and systems can survive exceptional but plausible shocks. Although weaknesses in stress tests were exposed by the global financial crisis, the recent experience of several countries has conversely provided a stark illustration of their ability to restore confidence in bank balance sheets when performed in a credible and transparent manner. At the International Monetary Fund (IMF), staff has continued to develop and improve their stress testing capabilities to meet these new challenges.

The IMF has had extensive involvement in the stress testing of financial systems since the launch of its Financial Sector Assessment Program (FSAP) more than a decade ago. In addition to bilateral surveillance, top-down stress tests have also been applied in the IMF’s multilateral surveillance. Member countries are also increasingly requesting IMF technical assistance in stress testing as they develop their own expertise in this area. Given these multifaceted demands, IMF staff has developed a large menu of stress testing methods and models over time.

The new book, A Guide to IMF Stress Testing: Methods and Models, offers a unique perspective on this important topic. It offers a suite of methods and models that can be used for the surveillance and supervision of both individual banks and financial systems across the entire spectrum of development; it also categorizes the methods and models according to their appropriate use, the data requirements, and their strengths and weaknesses, and provides accompanying tools or programming codes for wider public use.

“IMF staff has amassed a wealth of hands-on experience with stress test techniques and their practical application, and I hope that this volume will provide a valuable resource for users,” said José Viñals, Financial Counsellor and head of the IMF’s Monetary and Capital Markets Department.

Viñals stressed the importance of collaboration among country authorities, private sector entities, and IMF staff during FSAP stress testing exercises. This cooperation has helped IMF staff develop and calibrate many of the models presented in the book, some in collaboration with external authors. Pointing to the limits of these tools, Mr. Viñals said: “Stress tests are not fail-safe, stand-alone diagnostic tools and, therefore, must be complemented by other types of analyses, information, and expert judgment.”

The new book, edited by Li Lian Ong (http://www.imfbookstore.org/ProdDetails.asp?ID=SOAST), was launched in Singapore today. The event featured a panel discussion and was jointly hosted by the Monetary Authority of Singapore (MAS), the IMF-Singapore Training Institute (STI), and the IMF Resident Representative Office.

The panel, chaired by Julie Kozack, Director of the STI, focused on the various areas of stress testing—macroprudential, microprudential, and risk management—to which the IMF staff models may be applied. Panellists included Li Lian Ong, who recently joined the Singapore sovereign wealth fund, GIC Private Limited (GIC), from the IMF; Lily Chan, head of the Financial Studies and Statistics Division at MAS, which coordinates Singapore’s annual industry-wide stress testing exercise; Dominic Lim, Director of the Risk Performance and Management Department at GIC; and Cheng Hoon Lim, Assistant Director at the IMF. Other participants included representatives from academia, government agencies from several countries, the private sector, and the media.