Description

Current regulatory stress testing, as for example done by the EBA, BoE and the FED, is microprudential, non-systemic. These stress tests do not take into account systemic risk, even though the official aim of the stress test is the "test the resilience of the financial system as a whole, and the individual banks therein, to another crisis".
Two papers are being developed that look at the interconnections between banks. One paper investigates the systemic risk in the European banking system due to interbank exposures, using EBA data. The other paper, looks at the trade-off between individual and systemic risk with overlapping portfolios. The above two "channels of contagion" for systemic risk can be incorporated in stress tests to include systemic components to the traditional non-systemic stress tests.

Venue

Research Programmes