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 relationship between the observance of financial system standards and financial stability is complex owing to the multitude of macroeconomic and structural factors affecting stability. Therefore, assessments of standards in terms of technical criteria for compliance needs to be reinforced...

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...

This paper addresses the challenges to prudential supervision in highly dollarized economies, where central banks and supervisors may be constrained in the use of standard money and financial policy tools. The study’s conclusions are the basis of an ongoing policy dialogue with IMF member...

Most financial institutions in the European Union (EU) are still based in one country, but a number of large financial institutions (LCFI) have systemic cross-border exposures. The paper explains how, despite much progress, nationally-segmented supervisory frameworks and national accountability...

The global financial crisis has highlighted the importance of early identification of weak banks: when problems are identified late, solutions are much more costly. Until recently, Europe has seen only a small number of outright bank failures, which made the estimation of early warning models...

The key policy challenge for Turkey in the years ahead will be to enhance and consolidate the advances made since the nation’s 2000-01 economic crisis. Higher growth could reduce unemployment and raise living standards toward European Union levels. This paper reviews Turkey’s...

The paper provides an empirical analysis of aggregate banking system ratios during systemic banking crises. Drawing upon a wide cross-country dataset, we utilize parametric and nonparametric tests to assess the power of these ratios to discriminate between sound and unsound banking systems. We...

Over the past two decades, there has been a clear trend toward integrating the regulation and supervision of banks, nonbank financial institutions, and securities markets. This paper reviews the international experience with integrated supervision. We survey the theoretical arguments for and...

The forward-looking framework expounded in this paper links a qualitative evaluation of system-wide vulnerability (covering macro, sectoral, institutional, and systemic liquidity issues) with a quantitative assessment of the financial condition of significant financial institutions. Based on...