The study shows that the global financial crisis has adversely affected Kuwait’s financial system, especially in the Investment Company (IC) sector. Stress tests indicate that, in contrast to the ICs, the banking system could broadly withstand significant shocks. The Central Bank of...

This Selected Issues paper uses contingent claims analysis (CCA) to assess risks to the Colombian banking sector. The CCA approach is based on the estimation of the default probability by an entity on its obligations, and is widely used by rating agencies to assess creditworthiness in the...

Various indicators place Cyprus’s banking system soundness ahead of emerging countries but behind advanced economies. This report discusses financial sector stability in Cyprus, using a combination of accounting-based and market-based indicators, and stress tests. Cypriot commercial banks...

This paper surveys the foreign exchange markets, money and secondary government security markets, and stock exchanges in 107 smaller economy countries. The underdevelopment of these markets impedes risk transfer, monetary policy, corporate financing, and the capacity to absorb capital inflows....

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...

This paper investigates the presence of depositor discipline in the U.S. banking sector. We test whether depositors penalize (discipline) banks for poor performance by withdrawing their uninsured deposits. While focusing on the movements in uninsured deposits, we also account for the possibility...

This paper documents global trends in bank activity, consolidation, internationalization, and financial firm conglomeration, and explores the extent to which financial firm risk and systemic risk potential in banking are related to consolidation and conglomeration. We find that while there is a...

This paper reviews trends in bank lending to the private sector, with a particular focus on Central and Eastern European countries, and finds that rapid growth of private sector credit continues to be a key challenge for most of these countries. The paper discusses possible implications for...

This paper suggests a strategy designed to make best use of the available quantitative techniques of financial sector assessment. It incorporates early warning systems, financial sector forecasts, stress tests for systemically important financial institutions, interbank contagion analysis, and...

This paper surveys dynamic stochastic general equilibrium models with financial frictions in use by central banks and discusses priorities for future development of such models for the purpose of monetary and financial stability analysis. It highlights the need to develop macrofinancial models...