We propose a tractable, model-based stress-testing framework where the solvency risks, funding liquidity risks and market risks of banks are intertwined. We highlight how coordination failure between a bank's creditors and adverse selection in the secondary market for the bank's assets interact,...

We review heterogeneous agent-based models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

The rise of a crisis-prone banking sector and its political power has received significant attention following the most recent financial crisis. The crisis sparked a growing interest in understanding how and why we have created a world of large, unstable banks. Excessive banking activity arose...

Improving the regulation of banks has been at the centre of economic policy actions since the outbreak of the global financial crisis. One of the many and conceptually very different measures proposed is to improve the corporate governance of banks by setting qualification standards for banks’...

The macroprudential stress test for 2021-23 aims to provide insights into the resilience of the European banking sector following the coronavirus (COVID- 19) crisis. The assessment builds on a macro-micro model with individual euro area economies and significant banks, and the two scenarios from...

This paper presents an approach to a macroprudential stress test for the euro area banking system, comprising the 91 largest euro area credit institutions across 19 countries. The approach involves modelling banks’ reactions to changing economic conditions. It also examines the effects of...

This study aims to develop a financial stability index for the Pakistani financial sector by using the financial reports for the period of 2001–2011. Specifically, we constructed three different classes of indices in this study based on a variance-equal weighted approach, a linear probability...

I discuss the motivations and actions (or inaction) of individuals in the financial system, governments, central banks, academia and the media that collectively contribute to the persistence of a dangerous and distorted financial system and inadequate, poorly designed regulations. Reassurances...

The present paper examines the impact of the current fiscal crisis in the euro area on the Greek banking system and the institutional, regulatory and supervisory measures adopted to preserve its stability. It is divided into 2 Sections:(a) Section 1 deals with the differentiated impact of the...

The great financial crisis of 2007-08 and the recession have generated active debate on the role of financial systems on the real economy. In particular, central banks have shown increased interest in how financial systems can evolve to maximise their contribution to the real economy. Many...