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Stressing to Breaking Point: Interpreting Stress Test Results

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  • Mr. Rupert D Worrell

Abstract

This paper illustrates how stress tests of banking systems may be designed to evaluate banks' reaction to shocks of increasing intensity, up to the point where regulatory norms are breached, or banks become insolvent. This approach offers useful insight and guidance for regulatory policy and intervention, using existing methodology and data. The illustrations presented in this paper are a small sample of the wide variety of shocks, scenarios, and assumptions to which this approach may be applied.

Suggested Citation

  • Mr. Rupert D Worrell, 2008. "Stressing to Breaking Point: Interpreting Stress Test Results," IMF Working Papers 2008/148, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/148
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    References listed on IDEAS

    as
    1. Mr. Martin Cihak, 2007. "Introduction to Applied Stress Testing," IMF Working Papers 2007/059, International Monetary Fund.
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    Cited by:

    1. Chang Liu & Lin Tang & Dongtao Lin & Jiayi Guo, 2023. "Testing to extreme: An application of reverse stress testing engineering on mortgages of commercial banks in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 187-192, January.

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