Financial Stability and Supervisory Stress Testing for Banking Systems

Stress testing has become a key tool for assessing the potential impact of key financial stability risks and is widely used by central banks and banking supervisors throughout the JVI region. 

From January 24-28, 2022, the Oesterreichische Nationalbank (OeNB), with input from the JVI, organized a virtual training course on applied supervisory stress testing for participants from JVI countries. 

The course covered many areas relevant for supervisory stress testing of banks, such as scenario design, the translation of macro-financial shocks to probabilities of default, approaches to stress test banks’ net interest income and the determination of corporate insolvencies. OeNB experts also presented their top-down solvency stress test framework (‘ARNIE’), their liquidity stress test methodology and contagion analysis within the banking sector. The course also looked into more recent approaches to include climate risks into banking sector stress tests.

The course provided a platform for participants to present and discuss the stress testing models used in their own countries and the challenges encountered while running stress tests themselves. Specifically, the topics of data collection, processing, handling, and storage were discussed throughout the course. With data being a key ingredient in each stress test, the participants had the chance to compare their own approaches with those presented by the OeNB. Moreover, the participants shared their experiences of model development and discussed how different prior assumptions could affect the outcomes. Overall, the course helped participants to deepen their understanding of supervisory stress testing of banks.

Martin Guth, Analyst, Oesterreichische Nationalbank
Reiner Martin, Lead Economist, Joint Vienna Institute