Stress Testing for Financial Institutions

Stress Testing for Financial Institutions will provide you with guidance in regard to the stress testing process and includes several chapters on scenario analysis written by practitioners at Citigroup, Swedbank, GE Capital and the Bank of Finland.

This is the only book currently on the market that focuses solely on this subject, with sections broken down into close examination of stress testing in the context of corporate and retail credit risk, economic capital and regulatory capital.

This book is essential for financial risk quants, financial risk managers, financial risk researchers and financial institution regulators.

Stress Testing for Financial Institutions examines the regulatory and economic needs of banks and insurance companies and focuses on practical advice and solutions to everyday problems.

For regulators and practitioners, this book examines the regulatory and economic needs of banks and insurance companies, focusing on practical advice and solutions to everyday problems.

In line with the new Basel proposals, banks have to stress-test their assessment of capital adequacy. In recent years, they have developed internal models, which are currently under review by the respective regulators for approval. This book provides guidance for regulators and practitioners with regard to the stress-testing process.

Stress-testing for Financial Institutions is a comprehensive guide to this ‘unsolved issue’ in financial risk management. With no other book currently on the market that focuses solely on stress-testing for financial institutions, this couldn’t come at a better time. It includes chapters from academics, practitioners and regulators to cover the full spectrum of debate and perspectives on stress-testing. It includes innovative research from leading names in model analysis, and will help you to gain an insight into the regulations, constraints, and solutions to stress-testing in financial institutions.

Recommended for financial risk quants, financial risk managers, financial risk researchers and financial institution regulators.

TABLE OF CONTENTS

Foreword
Thilo Liebig

Section 1: Stress testing frameworks

1 Integrating Stress Testing Frameworks

2 Stress Tests, Market Risk Measures and Extremes: Bringing Stress Tests to the Forefront of Market Risk Management

Section 2: Stress testing for corporate credit risk

3 Credit Cycle Stress Testing Using a Point in Time Rating System

4 Stress-Testing Credit Value-at-Risk: a Multiyear Approach

5 Stress Testing the Impact of Group Dependence on Credit Portfolio Risk

6 Hedge the Stress: Using Stress Tests to Design Hedges for Foreign Currency Loans

Section 3: Stress testing for retail credit risk

7 Survey of Retail Loan Portfolio Stress Testing

8 Stress Tests for Retail Loan Portfolios

9 Stress Testing Banks’ Credit Risk: Using Mixture Vector Autogressive Models

Section 4: Stress testing for economic capital

10 Uncertainty, Credit Migration, Stressed Scenarios and Portfolio Losses

11 Worst-Case and Stressed Correlations in the Asymptotic Single Risk Factor Model

12 Risk Aggregation, Dependence Structure and Diversification Benefit

13 Stress Testing Credit Distributions of Banks' Portfolios: Risk Structure and Concentration Issues

14 Time-varying Correlations for Credit Risk: Modelling, Estimating and Stress Testing

Section 5: Stress testing for regulatory capital

15 Macro Model-Based Stress Testing of Basel II Capital Requirements

16 Risk Tolerance Concepts and Scenario Analysis of Bank Capital

17 Basel II-Type Stress Testing of Credit Portfolios

Epilogue
Fishing for Complements
Christopher Finger

QUOTES

U.S. Treasury Secretary Tim Geithner stated:
"... government agencies with authority will initiate a more consistent, realistic, and forward looking assessment about the risk on balance sheets. We are calling it a financial "stress test." We want banks' balance sheets cleaner and stronger."