Introduction to Applied Stress Testing

March 1, 2007

Preview Citation

Format: Chicago

Martin Cihak. Introduction to Applied Stress Testing, (USA: International Monetary Fund, 2007) accessed December 22, 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 is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.

Subject: Banking, Credit risk, Market risk, Nonperforming loans, Stress testing

Keywords: Economic value, Financial system, Interest rate, WP

Publication Details

Pages:

74
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/059
Stock No:

WPIEA2007059
ISBN:

9781451866230
ISSN:

1018-5941

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