OFR: Incorporating Liquidity Shocks And Feedbacks In Bank Stress Tests

Incorporating Liquidity Shocks And Feedbacks In Bank Stress Tests By Jill Cetina, OFR

Stress testing can be an important tool to assess the health of the financial system. U.S. supervisory stress tests measure the impact of hypothetical credit and collateral shocks on banks’ capital ratios. Supervisors have also begun liquidity stress tests to evaluate the effect of funding shocks on banks. This brief discusses how four types of shocks that can affect banks could be incorporated into...

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