Sovereign Risk in Macroprudential Solvency Stress Testing

This paper explains the treatment of sovereign risk in macroprudential solvency stress testing, based on the experiences in the Financial Sector Assessment Program (FSAP). We discuss four essential steps in assessing the system-wide impact of sovereign risk: scope, loss estimation, shock calibration, and capital impact calculation. Most importantly, a market-consistent valuation approach lies at the heart of assessing the resilience of the financial sector in a tail risk scenario with sovereign distress. We present a flexible, closed-form approach to calibrating haircuts based on changes in expected sovereign defaults affecting bank solvency during adverse macroeconomic conditions. This paper demonstrates the effectiveness of using extreme value theory (EVT) in this context, with empirical examples from past FSAPs.

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A Globally Consistent Stress Testing Approach

Research in Economics and Management ◽

10.22158/rem.v4n3p153 ◽

2019 ◽

Vol 4 (3) ◽

pp. p153

Author(s):

Colin Ellis

Keyword(s):

Stress Testing ◽

Expected Shortfall ◽

Data Availability ◽

Rank Ordering ◽

Testing Approach ◽

Bank Solvency ◽

High Level ◽

Loan Losses ◽

Compare And Contrast ◽

Expected Outcomes

This paper describes an approach for stress testing banks that is consistent across economies and geographies, in contrast to common “macro scenario” driven approaches. The latter would require economic scenarios to be both equally likely (in a probabilistic sense) and equally stressful (in a conditional loss sense) across countries in order to be comparable. The paper proposes a three-pronged approach for stressing bank solvency, which incorporates recalibrating pre-crisis Basel capital assumptions, adapting the BIS “expected shortfall” approach for securities, and using granular data for income haircuts. Loan losses are quantified using a simple “multiples” approach, starting from expected outcomes, which is derived from the pre-crisis Basel technical proposal. The approach is practical, can be more granular or conducted at a high level, depending on data availability, and offers a simple way for regulators, investors or risk assessors to compare and contrast stresses in different banking systems. Of the eight bank defaults recorded globally during 2017, this approach would have given a better “rank ordering” for seven of them, indicating the approach adds value to traditional solvency metrics.

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Georgia: Financial Sector Assessment Program-Technical Note-Stress Testing and Financial Stability Analysis

IMF Staff Country Reports ◽

10.5089/9781557753595.002 ◽

2021 ◽

Vol 2021 (221) ◽

pp. 1

Author(s):

Keyword(s):

Stability Analysis ◽

Financial Stability ◽

Stress Testing ◽

Financial Sector ◽

Technical Note ◽

Assessment Program

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ANALISIS KINERJA KEUANGAN PERBANKAN SYARIAH INDONESIA PADA MASA PANDEMI COVID-19

Jurnal Riset Akuntansi dan Bisnis Indonesia ◽

10.32477/jrabi.v1i1.327 ◽

2021 ◽

Vol 1 (1) ◽

pp. 111-125

Author(s):

Sri Diana ◽

Sulastiningsih Sulastiningsih ◽

Endar Sulistya ◽

Purwati Purwati

Keyword(s):

Financial Performance ◽

Quantitative Research ◽

Banking Industry ◽

Financial Sector ◽

Bank Performance ◽

Islamic Banking ◽

Important Thing ◽

Bank Solvency ◽

Solvency Ratio ◽

Profitability Ratios

Financial sector is an important thing for a country development. Indirectly, the financial sector will support the economy especially during the pandemic, including the Islamic banking industry. This study aims to analyze the financial performance of Islamic banking in Indonesia based on profitability ratios consisting of BOPO, ROA, ROE, liquidity ratios consisting of Cash ratio and FDR, as well as solvency ratios as measured by the CAR ratio, during the COVID-19 pandemic. This research is descriptive quantitative research by measuring the financial performance of the bank through the level of profitability ratios. The results of this study show that there is a fluctuation changing in the performance values during the COVID-19 pandemic. Bank performance through profitability ratios shows that some sharia banks are classified as efficient and some have decreased the performance. In the liquidity ratio, the average bank experienced a decline in the cash ratio component, with the lowest being at BRI Syariah, which fell by 50.9%. Bank solvency ratio generally shows good performance.

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