Don’t let a good crisis go to waste

As supervisory stress tests take a backseat, banks look for new ways to gauge extreme risks

In the aftermath of the 2008 financial crisis, when regulators were in the early days of beefing up their annual stress-testing regimes, a row broke out between one country’s central bank and its prudential supervisory arm about the severity of the worst-case scenario.

The central bank’s economists were pushing the regulator to soften its outlook. The country was already mired in its deepest post-war recession, they argued – surely things couldn’t get any worse.

Reluctant to call the bottom of