Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with...

The paper examines the scope for cross-border spillovers among major EU banks using information contained in the stock prices and financial statements of these banks. The results suggest that spillovers within domestic banking systems generally remain more likely, but the number of significant...

The global financial crisis has renewed policymakers' interest in improving the policy framework for financial stability, and an open question is to what extent and in what form should financial stability reports be part of it. We examine the recent experience with central banks' financial...

The global financial crisis has highlighted the potential of financial conditions for influencing real economic activity. We examine the linkages between the financial and real sectors in the euro area, finding that (i) bank loan supply responds negatively to declines in bank soundness; (ii) a...

The proximity of the European Union, the prospect of membership, and actual entry by the New Member States (NMS) increased economic and financial integration in the region, leading to fast economic growth based on sizeable capital inflows. EU membership helped in developing sound macroeconomic...

The effects of unanticipated movements in global risk on nine emerging bond markets are investigated. The components of global risk are volatility, credit, and liquidity risks. Country and contagion risks are also studied individually. A historical decomposition of bond spreads is used to...

To showcase their increasing focus on financial stability, many central banks and other institutions have started publishing regular reports on financial stability. The paper presents a survey of the available financial stability reports, and proposes a framework for assessing such documents. It...

A structural vector autoregression model is developed to analyze the dynamics of bond spreads among a sample of mature and developing countries during periods of financial stress in the last decade. The model identifies and quantifies the contribution on bond spreads from global market...

We examine the linkages between market and funding liquidity pressures, as well as their interaction with solvency issues surrounding key financial institutions during the 2007 subprime crisis. A multivariate GARCH model is estimated in order to test for the transmission of liquidity shocks...

August to September 1998 has been characterized as one of the worst episodes of global financial distress in decades. This paper investigates the transmission of the Russian and the LTCM crises through global equity markets using a panel of 14 developing and industrial countries. The results...