Macro Stress Testing in the Financial System Report (October 2016)
October 26, 2016
Financial System and Bank Examination Department
Bank of Japan
In the Financial System Report, two macro stress tests are implemented: (1) a "tail event scenario" that assumes a set of severe financial and economic conditions equivalent to the Lehman shock for each regular test, in order to assess the stability of the financial system through fixed-point observations; (2) a "tailored event scenario" that varies according to macroprudential concerns at the time of the test and that which seeks to examine the vulnerabilities of the financial system to these specific concerns. In the October 2016 issue of the Report, the tailored event scenario features constraints on the availability of foreign currency, in addition to a widening of foreign currency funding premiums, reflecting the importance of securing stable foreign currency funding for Japanese banks. This paper explains the specifics underlying the stress scenarios, and the background to the approach employed.
Please contact the Financial System and Bank Examination Department at the e-mail address below to request permission in advance when reproducing or copying the contents of this paper for commercial purposes.
Please credit the source when quoting, reproducing, or copying the contents of this paper for non-commercial purposes.
Financial System Research Division, Financial System and Bank Examination Department
E-mail : firstname.lastname@example.org