Stress tests to promote financial stability: Assessing progress and looking to the future
Abstract
Stress testing, which has its roots in risk management, should be adapted to support financial stability monitoring and to incorporate the interconnections and dynamics of the financial system. Since the 2008 financial crisis, bank supervisors have honed their financial stability monitoring tools and significantly expanded the use of stress testing in the supervision of the largest financial institutions. This paper describes areas in which further research could contribute to the development of best practices in stress testing and how stress tests can be made more useful for macroprudential supervision. Both near-term and longer-term objectives are discussed.
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Author's Biography
Rick Bookstaber is a Research Principal at the Office of Financial Research (OFR). He has a long career in industry, serving as the risk manager for a number of large institutions including Morgan Stanley, Salomon Brothers and Moore Capital. He also was a proprietary trader at Morgan Stanley and later was the principal of the quantitative equity hedge fund at FrontPoint Partners. Rick holds a PhD from MIT in economics.
Jill Cetina is on detail to the OFR from the Office of the Comptroller of the Currency. Her main interests are the Basel III liquidity standard, liquidity stress testing and evaluating interest rate risk. Jill previously held positions at the Federal Reserve Board (2007–2010) and US Treasury Department (1998–2007). She holds a BA from Grinnell College and an MPA from Princeton, and is a CFAw charterholder.
Greg Feldberg helps oversee the OFR’s Research and Analysis Center, which performs independent research on financial stability and related issues. He previously worked at the Federal Reserve Board (2002–2012) and as an equity analyst and journalist (1994–2001). He was Director of Research at the Financial Crisis Inquiry Commission in 2010. Greg holds a BA from Brown and an MPP from Harvard.
Mark Flood is a Research Principal at the OFR. His research interests include financial data and information, risk management, financial supervision and financial stability. He holds a BA in German and economics and a BS in finance from Indiana University at Bloomington and a PhD in finance from the University of North Carolina at Chapel Hill.
Paul Glasserman is the Jack R. Anderson Professor of Business at Columbia Business School, where he serves as research director of the Program for Financial Studies. His research addresses risk management, derivatives, and financial stability. In 2011–2012, he was on leave from Columbia and working at the OFR; he has since returned to the OFR as a contractor. Paul is a past recipient of Risk Magazine’s Quant of the Year award.
Citation
Bookstaber, Rick, Cetina, Jill, Feldberg, Greg, Flood, Mark and Glasserman, Paul (2013, December 1). Stress tests to promote financial stability: Assessing progress and looking to the future. In the Journal of Risk Management in Financial Institutions, Volume 7, Issue 1. https://doi.org/10.69554/SVZG1421.
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