Bank Stress-Testing Lessons from Central, Eastern and Southeastern European Countries

Abstract

This study examines the international experience of stress-testing. The sample covers stress-test practices of central banks from Central, Eastern and Southeastern European (CESEE) countries. The review is based on publicly available information, mainly from Financial Stability Reports (FSRs) in the period of their origination and up to June 2014. Having the benefit of diversity in "best stress-test practices", applied lessons are formulated on the main components of a supervisory macroprudential stress-test: preparation, execution, and publication. The first part of the process includes definition of stress-test coverage, selection of approach, and identification of risks. In the second, scenarios are designed and a methodology for quantifying shocks is created. Finally, the last phase comprises setting up a communication strategy and publication of stress test results.