Stress Testing and Bank Capital

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  • Topic: Credit risk, Operational risk, Risk
  • Pages : 4 (1172 words )
  • Download(s) : 121
  • Published : December 8, 2012
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Gutsuliak Taras
LNU named after I. Franko

Stress testing and bank capital

Past and recent events have shown the disruptive power of financial crises. The direct costs of the crises on the financial system – however measured – are high; indirect effects to the entire economic system may be dramatic and longlasting. The need of providing stress tests of the banking system is determined by the NBU Resolution N460 “Approval of guidelines for the procedure of stress-testing banks of Ukraine”. In January 2012 World Bank recommended Ukraine to provide stress tests in banking system, cause it is still high risk of banking system in developing countries. Significant contribution to the development of theory and practice of banking system stability and the use of stress tests for the evaluation made by such foreign scientists as M. Quagliariello, L. Allen, M. Jones, G. Kaminsky, G. Slack, S. Sorensen, P. Hilbert, etc. . These issues are discussed in the works of our scientists: A. Baranovsky, VA Zinchenko, AI Kireeva, M. Savluk. NBU recommend to provide stress tests of such risks: Credit risk, Liquidity risk, Market risk (currency risk, interest rate risk), Operational risk [1]. The main methods of stress testing in a commercial bank are scenario analysis (based on historical and hypothetical events) and sensitivity analysis of portfolio assets of the bank to changes of risk factors. Scenario analysis mainly focused at assessing strategic prospects of the bank. It allows to estimate the potential number of simultaneous impact of risk factors on the bank in case of extreme, but along with those of probable events [2]. The methodology aims at assessing the impact on the various portfolios in a scenario consistent way. The same shocks specified in the scenario are applied to assess the losses in Credit risk (PD time profile, LGD time profile, EAD time profile), Market risk, Operational risk, Country risk (Country specific shocks),...
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