Stress Testing (2nd Edition)
First published:
ISBN: 978-1-78272-391-2
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Stress Testing Across International Exposures and Activities
Robert Scavotto, Robert Skinkle and Hein Bogaard
Foreword
Introduction
Response to Financial Crises: The Development of Stress Testing over Time
Stress Testing and Other Risk Management Tools
Econometric Pitfalls in Stress Testing
Stress-testing applications of Machine Learning Models
Four Years of Concurrent Stress Testing at the Bank of England: Developing the Macroprudential Perspective
Stress Testing for Market Risk
The Evolution of Stress Testing Counterparty Exposures
Liquidity Risk: The Case of the Brazilian Banking System
Operational Risk: An Overview of Stress-testing Methodologies
Peacetime Stress Testing: A Proposal
Stress-test Modelling for Loan Losses and Reserves
A New Framework for Stress Testing Banks’ Corporate Credit Portfolio
EU-wide Stress Test: The Experience of the EBA
Stress Testing Across International Exposures and Activities
The Asset Market Effects of Bank Stress-test Disclosures
An Alternative Approach to Stress Testing a Bank’s Trading Book
Determining the Severity of Macroeconomic Stress Scenarios
Governance over Stress Testing
Stress testing foreign exposures of internationally active financial institutions by regulators, private sector analysts or the institutions themselves presents an array of challenges. These include devising appropriate global and idiosyncratic country scenarios, developing datasets for estimating quantitative relationships, and identifying and implementing qualitative factors that may drive loss rates. The development of stress-testing models and methodologies that account for market- or country-specific factors may involve trade-offs between general applicability and specificity, and may also be constrained by an availability of data. This chapter will discuss key challenges and draw on the authors’ analysis of stress testing international real estate exposures, and work to stress test consumer loan portfolios across a group of countries, as well as efforts to integrate systemic banking crises into stress tests of a government’s debt servicing capacity.
CONDUCTING STRESS TESTS OF INTERNATIONAL ACTIVITIES IN AN IDIOSYNCRATIC WORLD
In foreign markets, financial institutions are subject to country risk, which is the risk that economic, social and political conditions and
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