The macro
stress tests have a key role in identifying, preventing and dissolving the risk of banking and the whole financial system.
Deutsche Bank's
stress test included proceeds of around USD4bn from the sale of its stake in the Chinese bank, Hua Xia, which was delayed due to a regulatory delay.
Of the 51 banks subject to the EBA-led
stress test 37 are directly supervised by ECB Banking Supervision, covering 70% of banking assets in the euro area.
The EBAs
stress test is no forecasting exercise; rather, it analyzes how banks capital positions may develop under different stress scenarios.
A key feature of ED TN-2 is that it is accompanied by four basic
stress test templates: one each for conducting credit, market and liquidity risk assessments as well as a scenario analysis template that combines credit and market risk
stress tests.
Indeed, going further, we can say, with confidence, that we know that the methodologies underpinning both financial models and regulatory
stress tests do not work: the
stress tests provide an extremely unreliable radar system.
And, if you're undergoing routine
stress tests year in and year out, that's rarely indicated.
These credit unions would be required to maintain a
stress test capital ratio of at least 5%, which is higher than the 4% minimum leverage ratio required of banks.
As well as SIFIs, the multiple insurers with savings and loans, by Dodd-Frank default under Fed supervision, might also be caught up in this
stress test scenario, the ACLI worries.
Although community banks will not be required to undergo the same types of
stress tests, the regulators did note that all banks, regardless of size, should be able to "analyze the potential impact of adverse outcomes in their financial conditions.
The government had asked the Vienna-based body to verify that the methodology of the
stress tests is consistent with global safety standards.
However, since the recession of 2008-2009, other companies have been performing
stress tests on their financial statements.
