Stress Testing: A Review of key Concepts

Martin Čihák

The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system-wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors.

Keywords: Financial soundness, macroprudential analysis, stress tests

Issued: April 2004

Published as: " Stress Testing of Banking System ," Czech Journal of Economics and Finance, Vol. 53, No. 9-10, pp. 417-440, 2005

Download RPN No. 2/2004 (pdf, 332 kB)