By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The International Monetary Fund said on Friday it has published a new book on stress testing models for individual banks and financial systems across the entire spectrum of development.
The global lender said the new book, ‘’A Guide to IMF Stress Testing: Methods and Models’’, offers a unique perspective on this important topic. ‘’It offers a suite of methods and modelsthat can be used for the surveillance and supervision of both individual banks and financial systems across the entire spectrum of development,’’ the Fund said.
According to the IMF, it also categorisesthe methods and models according to their appropriate use, the data requirements, and their strengths and weaknesses, and provides accompanying tools or programming codesfor wider public use.
“IMF staff has amassed a wealth of hands-on experience with stress test techniques and their practical application, and I hope that this volume will provide a valuable resource for users,” said José Viñals, financial counsellor and head of the IMF’s monetary and capital markets department.
Viñals advised on the importance of collaboration among country authorities, private sector entities, and IMF staff during Financial Sector Assessment Program (FSAP) stress testing exercises.
The Funds financial counselor added that this cooperation has helped IMF staff develop and calibrate many of the models presented in the book, some in collaboration with external authors.
‘’Pointing to the limits of these tools, stress tests are not fail-safe, stand-alone diagnostic tools and, therefore, must be complemented by other types of analyses, information, and expert judgment,” Viñals affirmed.
The IMF said the global financial crisis has put a spotlight on the stress testing of individual financial institutions and entire financial systems. ‘’Stress testing is a “what if” exercise to determine whether these institutions and systems can survive exceptional but plausible shocks,’’ the Fund said.
Also, the global financial institution affirmed it has had extensive involvement in the stress testing of financial systems since the launch of its FSAP more than a decade ago. ‘’In addition to bilateral surveillance, top-down stress tests have also been applied in the IMF’s multilateral surveillance,’’ the IMF said.
It added that member countries are also increasingly requesting the Fund’s technical assistance in stress testing as they develop their own expertise in this area. ‘’Given these multifaceted demands, IMF staff has developed a large menu of stress testing methods and models over time,’’ the global lender added.
