Into the Great Unknown: Stress Testing with Weak Data

By Li L Ong, Rodolfo Maino, Nombulelo Braiton

December 1, 2010

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Li L Ong, Rodolfo Maino, and Nombulelo Braiton. Into the Great Unknown: Stress Testing with Weak Data, (USA: International Monetary Fund, 2010) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Stress testing has become the risk management tool du jour in the wake of the global financial crisis. In countries where the information reported by financial institutions is considered to be of sufficiently good quality, and supervisory and regulatory standards are high, stress tests can be of significant value. In contrast, the proliferation of stress testing in underdeveloped financial systems with weak oversight regimes is fraught with uncertainties, as it is unclear what the results actually represent and how they could be usefully applied. In this paper, problems associated with stress tests using weak data are examined. We offer a potentially more useful alternative, the "breaking point" method, which also requires close coordination with on-site supervision and complemented by other supervisory tools and qualitative information. Excel spreadsheet templates of the stress tests presented in this paper are provided.

Subject: Banking, Loan classification, Loans, Nonperforming loans, Stress testing

Keywords: Loan, Loss loan, Performing loan, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/282
Stock No:

WPIEA2010282
ISBN:

9781455210893
ISSN:

1018-5941

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