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Capital Adequacy Pre‐ and Postcrisis and the Role of Stress Testing
Author(s) -
SCHUERMANN TIL
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12735
Subject(s) - peacetime , stress testing (software) , extant taxon , financial crisis , capital (architecture) , capital adequacy ratio , stress test , business , capital requirement , financial system , economics , finance , macroeconomics , political science , computer science , geography , market economy , archaeology , evolutionary biology , incentive , law , biology , programming language
The financial crisis forced the development of new approaches for determining capital adequacy in banks since extant methods clearly did not prepare banks or their supervisors sufficiently. The success of stress testing as a crisis response tool, particularly in the U.S. in 2009, has led to its adoption postcrisis as the tool of choice for assessing capital adequacy in banks and testing resiliency to economic and financial shocks. But the increased reliance on stress testing in financial peacetime has given rise to a new risk concentration, namely, in the rather narrow set of scenarios and their translation to outcomes and impact on bank financials.