Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences

Abstract

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. WPI01I88The paper has three objectives.After a general introduction to some of the concepts and basic techniques of stress testing, the paper gives an overview of some of the conceptual issues involved in evaluating risks at the aggregated level of financial systems.Second, this study provides a basic framework and toolkit for conducting stress tests.Finally, the paper reviews some of the stress-testing analyses conducted in the context of the Financial Sector Assessment Program (FSAP) and suggests simplified approaches to deal with situations where the quantity and quality of the data is less than ideal.