- Call for papers
- Submission deadline: 1 July 2022
Working Group on Stress Testing
Stress tests have in recent years become an important tool for ensuring the financial system is robust and resilient to adverse macroeconomic shocks. This new trend has been reflected in the launch of European Union-wide banking sector stress tests in 2011, which have now become an important supervisory tool for identifying capital shortfalls in the banking sector. Since the Single Supervisory Mechanism was established, its stress tests have informed supervisory evaluations and have helped supervisors in setting capital requirements for banks. In 2016 the European Central Bank (ECB) also conducted its first macroprudential stress test to evaluate the resilience of the euro area banking sector, taking into account amplification mechanisms and second-round effects. Similar EU-wide initiatives have followed for insurers, pension funds and central counterparty clearing houses.
During the pandemic, stress tests helped in evaluating risk mitigation policies and communicating supervisory actions. The coronavirus (COVID-19) crisis created both challenges and opportunities for stress-testing methods. Unlike the fictitious scenarios used in standard prudential stress-testing exercises, the COVID-19 crisis was a real life “stress test” which acted as a proving ground for existing methods. In 2021 the ECB’s top-down vulnerability analysis coupled with the macroprudential stress test effectively and appropriately informed supervisory and macroprudential policy responses.
The Working Group on Stress Testing (WGST) was established in 2018 under the aegis of the Financial Stability Committee (FSC). The Working Group’s objective is to strengthen research on stress-testing methods and foster cooperation between FSC members on this topic. The cooperation within the Working Group has been key for further developing stress-testing tools for policy purposes, and for their quick and effective application during the COVID-19 crisis. The Working Group plans to hold its first research workshop in Frankfurt on 29 September 2022, hosted by the ECB. The workshop’s aim is to reflect both on the evolution of stress testing to date and on the lessons learned from using stress-testing tools in the pandemic, as well as to discuss the way forward.
Experts from academia and policy institutions are invited to present papers at the workshop. Additionally, the workshop will host a presentation by a keynote speaker and a policy panel.
David Aikman (King’s Business School) – paper “Credit, capital and crises: a GDP-at-Risk approach” (co-authored with J. Bridges, S. Hacioglu Hoke, C. O'Neill and A. Raja)
We welcome theoretical and empirical contributions in the form of high-quality research papers related to stress testing. Topics of interest include, but are not limited to:
- The role of stress testing in microprudential and macroprudential supervision
- The design of macroeconomic scenarios for stress-testing purposes
- Stress-testing models: evolution, design and performance validation
- Modelling amplification and feedback effects in stress testing
- Stress testing for non-bank financial institutions and systemic stress tests
- Complementarities between microprudential and macroprudential stress testing
- The COVID-19 shock and challenges and opportunities for stress-testing models
- The role of stress tests when financial stability is impaired
- How to deal with model uncertainty in stress testing
- Stress-testing methods in support of policy evaluation and central bank or supervisory communication
- How stress tests affect economic behaviour and financial stability
- Optimal disclosure policies for supervisory stress tests
The above list is not exhaustive, and all submissions broadly related to the topic of stress testing will be considered for this workshop.
Submissions are welcome from all colleagues of the ESCB and EU or international financial institutions working on workshop-related topics.
Interested authors should submit their papers by 1 July 2022 to StressTestingConference@ecb.europa.eu. Authors of accepted papers will be notified by 1 September 2022.
Attending the workshop
The invitation to attend the workshop is extended to:
- members of the WGST
- members of any department within the European System of Central Banks (ESCB), represented in the substructures of the FSC or European Systemic Risk Board, working on topics related to the content of the workshop
- members of any EU or international financial institution (e.g. the European Supervisory Authorities, the Bank for International Settlements, the Federal Reserve System, and the International Monetary Fund) working on topics related to the content of the workshop
However, due to space constraints, attendance for non-WGST is limited to one participant from each institution (not including colleagues presenting papers).
Travel and accommodation expenses of the attendees, presenters of accepted papers and panel members should be covered by their respective organisations.