No. 1048 - System-wide stress tests: a survey of empirical evidence, concepts, and methodologies
The paper provides a review of the recent literature on system-wide stress tests for the financial system, with a particular focus on the interconnections between banks and non-bank intermediaries. After recalling the main episodes that prompted the development of this type of exercise, the study describes the methodological approaches used to conduct them, analyses the different types of shocks and the related contagion mechanisms and highlights their implications, as well as the areas that require further investigation.
The analysis of the literature on system-wide stress tests shows that the interconnections among the various types of intermediaries, interactions between liquidity and solvency risks and common exposures and behaviours across different market participants can amplify the effects of shocks on the financial system as a whole, in ways that cannot be captured by sectoral stress-testing exercises. Some methodological issues remain open, and progress is needed in terms of data availability.
Instagram
YouTube
X - Banca d'Italia
Linkedin
RSS
E-mail Alert
