Record Details

A Globally Consistent Stress Testing Approach

Sri Lankan Journal of Human Resource Management

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Title A Globally Consistent Stress Testing Approach
 
Creator Ellis, Colin
 
Description This paper describes an approach for stress testing banks that is consistent across economies and geographies, in contrast to common “macro scenario” driven approaches. The latter would require economic scenarios to be both equally likely (in a probabilistic sense) and equally stressful (in a conditional loss sense) across countries in order to be comparable. The paper proposes a three-pronged approach for stressing bank solvency, which incorporates recalibrating pre-crisis Basel capital assumptions, adapting the BIS “expected shortfall” approach for securities, and using granular data for income haircuts. Loan losses are quantified using a simple “multiples” approach, starting from expected outcomes, which is derived from the pre-crisis Basel technical proposal. The approach is practical, can be more granular or conducted at a high level, depending on data availability, and offers a simple way for regulators, investors or risk assessors to compare and contrast stresses in different banking systems. Of the eight bank defaults recorded globally during 2017, this approach would have given a better “rank ordering” for seven of them, indicating the approach adds value to traditional solvency metrics.
 
Publisher SCHOLINK INC.
 
Contributor —
 
Date 2019-06-24
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.scholink.org/ojs/index.php/rem/article/view/2130
10.22158/rem.v4n3p153
 
Source Research in Economics and Management; Vol 4, No 3 (2019); p153
2470-4393
2470-4407
 
Language eng
 
Relation http://www.scholink.org/ojs/index.php/rem/article/view/2130/2257
 
Rights Copyright (c) 2019 Colin Ellis
http://creativecommons.org/licenses/by/4.0