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About
the Sovereign Central
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Monetary Policy |
Supervision & Regulation |
Financial Stability |
Payment Systems
Financial Stability
What Is Financial Stability |
Types of
Financial System Vulnerabilities and Risks |
Monitoring Risk Across the Financial System |
Proactive
Monitoring of Markets and Institutions |
> Financial
Stability and Stress Testing
Financial Stability and Stress Testing One important element
of enhanced supervision of systemically
important financial institutions is the
stress testing process. In addition to fostering the safety and soundness of the participating institutions, the stress test program includes macroprudential elements, such as: examination of the loss-absorbing capacity of institutions under a common macroeconomic scenario that has features similar to the strains experienced in a severe recession and which includes, as appropriate, identified salient risks; conducting horizontal testing across large institutions to understand the extent to which those institutions are exposed to similar risks that will generate losses at multiple institutions at the same time; and consideration of the effects of counterparty distress on the largest, most interconnected firms. The
macroeconomic and financial scenarios that are used in the stress testing process have proved to be an important macro prudential tool. The scenarios are not forecasts, but rather represent a hypothetical severe economic downturn and financial market stresses that are designed to assess the resiliency of banks and their capital planning process. The Central Bank adjusts the severity of the macroeconomic scenario and global market shock used each year in a way that counteracts the natural tendency for risks to build within the financial system during periods of strong economic activity and for risk appetite to diminish during periods of weak economic activity. The scenarios can also be used to assess the financial systems' vulnerability to particularly significant risks and to highlight certain risks to institutions subject the stress testing process.
About the :Nyan-ko-pong: Royal Central Bank | ||||||||||||||
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