Stress test and stress testing

In general, a model calculation designed to detect and evaluate risks in a portfolio. The focus is on unusual but conceivable changes in the economic environment as a whole and in individual areas (shocks). – An irregular examination by the International Monetary Fund of a country’s financial system to determine its resilience to negative developments in the macroeconomic environment that are assumed in a calculation model. The results are published. – Investigations ordered by supervisory authorities or carried out by the authorities themselves with regard to the risk-bearing capacity of banks and insurance companies. Under the Solvency Regulation, institutions in the EU must conduct regular stress tests for all major risk types. In the wake of the subprime crisis, which escalated into a global financial crisis, it became apparent that the model calculations had set the conceivable loss far too low – as a rule, the approaches included a loss amounting to a quarterly profit – and also failed to take into account the possibility that supply and demand on the financial market could temporarily collapse completely worldwide. – Uniform stress tests for all banks in the EU are often called for; however, these are likely to produce little meaningful and arguably even misleading results due to the diversity of institutions and business models. Nevertheless, in July 2011, the European Banking Authority published the results of stress tests for 91 institutions for the first time, including 14 German counterparties. Market reactions to the publication indicated that this had increased confidence in banks. – Since 2005, the Deutsche Bundesbank has published a Financial Stability Report in November, which attempts to set out in great detail all the risk factors of the financial system, both in aggregate and in detail. – See meltdown risk, asset quality review, comprehensive assessment, crash, domino effect, earnings weakness, extreme event, negative, ECB sin, financial market stability, financial system, herd behavior, hybrid bank, liquidity crisis plan, market risk stress test, Murphy’s law, risk-bearing capacity, risk and solvency assessment, proprietary, shock, external, sensitivity analysis, stress test, reservations, confidence, volatility, worst case scenario. – Cf. Deutsche Bundesbank Monthly Report of December 2003, p. 55 ff., BaFin Annual Report 2003, p. 24 f., p. 44 (with respect to insurance companies), ECB Monthly Report of January 2005, p. 61 (with respect to procyclicality in the EU), Deutsche Bundesbank Monthly Report of September 2005, p. 61 ff. (very detailed presentation; overviews; references), ECB Monthly Report of October 2005, p. 79 ff. (textbook presentation; overviews), ECB Monthly Report of February 2007, p. 90 ff. (crisis simulation tests in the EU), BaFin Annual Report 2006, pp. 94 ff. stress testing at insurance companies), pp. 121 f. (significance of tests in connection with Basel II; findings from stress tests conducted at banks), BaFin Annual Report 2007, pp. 91 f. (different results), Deutsche Bundesbank Monthly Report of September 2008, pp. 66 ff. (liquidity risk stress tests), BaFin Annual Report 2008, p. 56 (regulations for liquidity risk management). BaFin Annual Report 2009, p. 92 (Bafin tests), ECB Monthly Report of August 2010, pp. 43 ff. (stress test reveals apparent capital shortfalls), BaFin Annual Report 2010, p. 12 (German banks participated in stress test), pp. 45 f. (EU stress tests)., pp. 102 f. (results of BaFin’s stress tests), p. 139 (new requirements for stress tests; inverse stress tests: to determine by which interaction of which risk drivers an institution is at risk), Financial Stability Report 2011, pp. 45 ff. (assessment of the risk-bearing capacity of German institutions; overviews), BaFin Annual Report 2011, pp. 59 ff. (progress on internationally coordinated stress tests), pp. 123 f (BaFin stress test for insurance companies: results), pp. 152 f. (EBA stress test: results), Financial Stability Report 2013, pp. 11 (summary stress indicator for the German financial system since 2007), pp. 59 ff (stress test results), BaFin Annual Report 2013, p. 37 (EBA’s uniform stress test guidelines), pp. 132 f. (stress test for insurance companies also by EIOPA; details).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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https://www.gerhardmerk.de/