Stress testing for supervisory purposes: Framework and challenges
Abstract
Since 2009, when the Federal Reserve conducted the Supervisory Capital Assessment Program (SCAP), the Federal Reserve has been conducting supervisory stress tests to evaluate the capital adequacy of large banks and to support broad supervisory programmes. These stress tests provide a case study on the key challenges to designing a supervisory stress testing framework for ongoing supervision. The evolution of supervisory stress testing in the USA also provides a lens to examine particular considerations for scenario design, stress testing methodology, and public disclosure within the context of an annual exercise. The US experience suggests that annual supervisory stress tests can help link micro-prudential supervision to macro-prudential objectives; however, the value of supervisory stress tests is best assessed within the context of the broader supervisory programmes they support.
The full article is available to subscribers to the journal.
Author's Biography
Joseph Cox is a financial analyst in the Division of Banking Supervision and Regulation at the Board of Governors of the Federal Reserve System. He has contributed to developing the Federal Reserve’s policy framework for stress testing.
Lisa Ryu is a Deputy Associate Director in the Division of Banking Supervision and Regulation at the Board of Governors of the Federal Reserve System. She is responsible for the Federal Reserve’s supervisory stress test programme and chairs the Model Oversight Group responsible for the development and implementation of the models used for the Federal Reserve’s stress test.
Citation
Cox, Joseph and Ryu, Lisa (2013, December 1). Stress testing for supervisory purposes: Framework and challenges. In the Journal of Risk Management in Financial Institutions, Volume 7, Issue 1. https://doi.org/10.69554/FPKJ3138.
Publications LLP