We develop an operational model of information contagion and show how it may be integrated into a mainstream, top-down, stress-testing framework to quantify systemic risk. The key transmission mechanism is a two-way interaction between the beliefs of secondary market investors and the...

The most recent global credit mishap of 2008, the worst financial catastrophe of the 21st century, succeeded the Great Depression of the 1930s as the worst event of all times, and used in stress testing under severely adverse scenario analysis. Rather promoting financial stability, the Basel...

This paper proposes an operational approach to stress testing, allowing one to assess the banking sector's vulnerability in multiple plausible macro-financial scenarios. The approach helps identify macro-financial risk factors of particular relevance for the banking system and individual banks...

How do banks respond to changes in capital requirements as a result of the stress tests? Does the disclosure of stress test results matter? To answer these questions, we study the impact of European stress tests on banks' lending, their corresponding risk-taking, the ensuing effect on their...

How do banks respond to changes in capital requirements as a result of the stress tests? Does the disclosure of stress test results matter? To answer these questions, we study the impact of European stress tests on banks' lending, their corresponding risk-taking, the ensuing effect on their...

IFRS 9 substantially affects the financial sector by changing the impairment methodology for credit losses. This paper analyzes the implications of the change from IAS 39 to IFRS 9 in the context of bank resilience. We shed light on two effects. First, the "cliff-effect", which refers to sudden...

We empirically examine the quality of accounting information that authorities utilise when conducting bank stress tests and provide evidence on how this information links to the outcome of these tests. Based on a unique dataset of tested and non-tested banks from 27 European countries, we...

We present a stochastic simulation forecasting model for stress testing aimed at assessing banks' capital adequacy, financial fragility and probability of default. The paper provides a theoretical presentation of the methodology and the essential features of the forecasting model on which it is...

This paper investigates the effectiveness of supervisory discipline on bank risk over the years immediately before, during and just after the recent crisis. It is the first study to consider the effects of informal supervisory enforcement actions in addition to formal actions. Informal...