Stress-testing the Banking System
Methodologies and Applications

This book analyses the theoretical underpinnings, as well as the practical aspects, of applying stress-testing methodologies.

Mario Quagliariello (Edited by)

9780521767309, Cambridge University Press

Hardback, published 15 October 2009

354 pages, 34 tables
24.9 x 17.5 x 2.5 cm, 0.76 kg

'The need to complement risk management models with rigorous and sound stress-testing techniques has been clearly highlighted not only by the New Basel Capital Accord but also by the recent financial crisis. Building on the experience gained by economists from a large number of financial authorities worldwide, this book represents the most comprehensive and well organized collection of methodological and empirical studies on this key subject.' Andrea Sironi, Bocconi University, Milan

Stress tests are used in risk management by banks in order to determine how certain crisis scenarios would affect the value of their portfolios, and by public authorities for financial stability purposes. Until the first half of 2007, interest in stress-testing was largely restricted to practitioners. Since then, the global financial system has been hit by deep turbulences, including the fallout from sub-prime mortgage lending. Many observers have pointed out that the severity of the crisis has been largely due to its unexpected nature and have claimed that a more extensive use of stress-testing methodologies would have helped to alleviate the repercussions of the crisis. This book analyses the theoretical underpinnings, as well as the practical aspects, of applying such methodologies. Building on the experience gained by the economists of many national and international financial authorities, it provides an updated toolkit for both practitioners and academics.

List of figures
List of tables
List of boxes
List of contributors
Acknowledgements
Foreword Giovanni Carosio
Introduction Mario Quagliariello
Part I. Fundamentals: 1. A framework for assessing financial stability Maurizio Trapanese
2. Macroeconomic stress-testing: definitions and main components Mario Quagliariello
3. Macroeconomic stress-testing banks: a survey of methodologies Mathias Drehmann
4. Scenario design and calibration Takashi Isogai
5. Risk aggregation and economic capital Vincenzo Tola
6. Data needs for stress-testing Francesco Cannata and Ulrich Krueger
7. Use of macro stress tests in policy making Patrizia Baudino
Part II. Applications: 8. Stress-testing credit risk: the Italian experience Sebastiano Laviola, Juri Marcucci and Mario Quagliariello
9. Stress-testing US banks using economic-value-of-equity models Mike Carhill
10. A framework for integrating different risks: the interaction between credit and interest rate risk Steffen Sorensen and Marco Stringa
11. Stress-testing linkages between banks in the Netherlands Iman van Lelyveld, Franka Liedorp and Marc Pröpper
12. An integrated approach to stress-testing: the Austrian systematic risk monitor Michael Boss, Gerald Krenn, Claus Puhr and Martin Summer
13. From macro to micro: the French experience on credit risk stress-testing Muriel Tiesset and Clément Martin
14. Stress-testing in the EU new member states Adam G?ogowski
15. Cross-border macro stress-testing: progress and future challenges at the EU level Olli Castren, John Fell and Nico Valckx
16. Stress-testing at the IMF Marina Moretti, Stéphanie Stolz and Mark Swinburne
Conclusions Mario Quagliariello
Index.

Subject Areas: Banking [KFFK], Finance & accounting [KF], Monetary economics [KCBM]