Orlov, Dmitry; Zryumov, Pavel; Skrzypacz, Andrzej - 2018 - Current Draft: 17th May, 2018
We study the design of stress tests that provide information about aggregate and idiosyncratic risk in banks’ portfolios and impose contingent capital requirements. In the optimal static test, an adverse scenario fails all weak and some strong banks, limiting the stigma of failure. Sequential...