Stress Test Methodology for Household and Firms

Description

Stress tests permit a forward-looking analysis and a uniform approach to identifying potential risks to the banking system as a whole, but also to individual institutions;

A stress test covering households and firms exposures could offer important indications on their capacity to withstand macroeconomic shocks (such as sharp movements in interest rates, exchange rates, GDP, employment) and how their reaction to these shocks affects the banking sector.

Impact Drivers

• Public: To improve risk management by developing reliable models, able to signal potential threats generated by households and corporate sectors; to strengthen evidence supporting loan loss, general reserve provisioning and credit risk strategies to reduce credit risk cost
• Private: To improve the tools for monitoring financial stability

Economics

At present, the central bank and the banks do not have comprehensive models to stress test the households and corporate sectors credit exposures.

SPI Committee Involvement

To build up a common understanding on the use of stress tests in the process of monitoring financial stability at the banking system and individual banks level.Additional Information on SPI Committee.

Management

Terms of Reference

• TOR
  

Regulatory Impact Assessment

• RIA

SPI Committee Documents

• SPI Committee Meeting Stress Testing Report - November 13, 2007

• Stress Testing in Banks PWG Presentation - October 19, 2007

• Round table discussion with NBR Financial Stability Department and Banks Representatives - October 19, 2007
• SPI Committee Meeting Stress Testing Report - July 25, 2007

• SPI Committee Meeting Stress Testing Report - April 27, 2007

Technical Documents

• CEBS document on Stress Testing
• Questions from NBR Regarding Stress Testing

Project Working Group Minutes

• SPI Strategy Meeting Minutes - December 7, 2006