Past Event

Integrating stress tests within the Basel III framework

How can we integrate supervisory stress tests with the Basel III framework in a macroprudentially coherent and transparent manner?

Date: November 24, 2016, 10:30 am Topic: Banking and capital markets

SUMMARY

SEE BELOW FOR AUDIO&VIDEO AND EVENT MATERIALS

Microprudential and macroprudential policies can be conflicting in their objectives and toolkits. At this event, Anatoli Segura Velez from Banca D’Italia presented a proposal on how to bridge the two dimensions using supervisory stress tests in a macroprudentially coherent framework.

Presently, both the Basel III capital framework and the system-wide stress tests are used to assess banks’ capital adequacy. The proposal is to introduce a bank-specific Stress Test Buffer as an additional capital requirement to the Pillar 1 of Basel III. By imposing the condition of procyclical severity to this buffer – increased during expansions and decreased during downturns -, it is possible to ensure countercyclical macroprudential policy. Severity choices are made under a constrained discretion approach based on macroeconomic scenarios. This combination between rules and discretion would counteract inaction bias from supervisors, enhancing predictability and transparency of policymaking.

The stress tests currently used to assess the resilience of individual banks have thus the potential to be used to test whether the existing Capital Conservation and Countercyclical Capital buffers are capable of withstanding an adverse macroeconomic shock. If not, a stress test buffer (STB) could be activated to absorb remaining losses. Part of banks’ voluntary buffers could be channelled to cover additional capital requirements set by the STB, if necessary, avoiding capital shortfall.

The panel noted that the implementation of this instrument entails several challenges, and further work would need to be done to provide a formal definition of a severity measure and of a rule to guide policy along the cycle, under a constrained discretion approach.  In fact, while in the United States and the UK some of the features outlined above already exist, the jurisdiction in the Euro Area poses some difficulties to the operationalization of these measures. A second challenge would be the choice of the adequate cycle to which the stress tests would be related (e.g. business cycle or credit cycle). Additionally, in order for the scenario design to be appropriate, it was recommended that each domestic cyclical position was also taken into account. A final remark concerned the differences in objectives of stress testing in a macroprudential and microprudential frameworks, and the possible problems of credibility that could emerge when using the same instrument in both spheres.

Event notes by Inês Gonçalves Raposo

VIDEO & AUDIO RECORDING

EVENT MATERIALS

Presentation by Anatoli Segura Velez and Pierluigi Bologna

Schedule

Nov 24, 2016

10.30-11.00

Check-in and welcome coffee

11.00-11.30

Presentation

Anatoli Segura Velez, Economist, Financial Stability Research Directorate, Bank of Italy

11.30-12.00

Comments

Chair: Dirk Schoenmaker, Non-Resident fellow

Benjamin Friedrich, Bank Sector Analyst, European Banking Authority

Carmelo Salleo, Head of Macro-Financial Policies Division, European Central Bank

12.00-12.30

Audience Q&A

12.30

Lunch

Speakers

Benjamin Friedrich

Bank Sector Analyst, European Banking Authority

Anatoli Segura Velez

Economist, Financial Stability Research Directorate, Bank of Italy

Dirk Schoenmaker

Non-Resident fellow

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

[email protected]

Read about event
 

Past Event

Past Event

Monetary policy in the time of climate change

How does climate change influence monetary policy in the eurozone? What potential monetary policy measures should be taken up to address climate risks?

Speakers: Cornelia Holthausen, Jean Pisani-Ferry and Guntram B. Wolff Topic: Green economy, Macroeconomic policy Date: October 20, 2021
Read about event
 

Past Event

Past Event

A hybrid future of work

Addressing employers’ and employees’ challenges.

Speakers: Julie Brophy, Joost Korte, Laura Nurski, Renske Paans and Alex A. Saliba Topic: Digital economy and innovation, Inclusive growth Date: October 19, 2021
Read about event More on this topic
 

Past Event

Past Event

What is the link between biodiversity loss and financial instability?

Biodiversity loss impacts financial stability. How big is the risk of biodiversity loss for financial institutions?

Speakers: Sylvie Goulard, Romain Svartzman, Guntram B. Wolff and Michael Wilkins Topic: Banking and capital markets Date: October 5, 2021
Read about event More on this topic
 

Past Event

Past Event

How to strike the right balance between the three pillars of the pension system?

In this event panelists will discuss the future of European pension schemes.

Speakers: Elsa Fornero, Svend E. Hougaard Jensen and Suvi-Anne Siimes Topic: Macroeconomic policy Date: September 23, 2021
Read about event More on this topic
 

Past Event

Past Event

Academic lecture: International technology competition

Bruegel Annual Meetings, Day 3 - On the final day of the Annual Meetings, our Director Guntram Wolf sits with Keyu Jin to discuss international competition policy.

Speakers: Keyu Jin, J. Scott Marcus and Guntram B. Wolff Topic: Digital economy and innovation Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event
 

Past Event

Past Event

Conference on the Future of Europe: envisioning EU citizens engagement

Bruegel Annual Meetings, Day 3 - Panellists will discuss different options and what they may entail while revisiting the debates on the future of Europe at national and EU-level that have been conducted thus far.

Speakers: Caroline de Gruyter, Kalypso Nicolaïdis, Niclas Poitiers and György Szapáry Topic: European governance, Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event
 

Past Event

Past Event

Sustainable finance

Bruegel Annual Meetings, Day 3 - In this session on the final day of the Meetings, our panelists will discuss the future of finance and its sustainability.

Speakers: Maria Demertzis, Alberto De Paoli, Pierre Heilbronn and Alexandra Jour-Schroeder Topic: Banking and capital markets, Green economy Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Navigating a more polarised world: policy implications

Bruegel Annual Meetings, Day 2 - Are we entering a new age in the relationship between international economics and global politics? Is Europe well-equipped for this new world?

Speakers: Hélène Rey, Jean Pisani-Ferry, Adam Tooze and Sabine Weyand Topic: Global economy and trade Location: Palais des Academies, Rue Ducale 1 Date: September 2, 2021
Read about event
 

Past Event

Past Event

Blending physical and virtual: shaping the new workplace

Bruegel Annual Meetings, Day 2 - This panel will cover the changes the COVID-19 pandemic made to our workplaces, and what to expect in the near future.

Speakers: Nicholas Bloom, Michael Froman, Mario Mariniello, Sara Matthieu and Luca Visentini Topic: Inclusive growth, Macroeconomic policy Location: Academy Palace Date: September 2, 2021
Read about event
 

Past Event

Past Event

Brave new digital industrial policy

Bruegel Annual Meetings, Day 2 - In this session our speakers will discuss innovation and digitalisation.

Speakers: Francesca Bria, Kerstin Jorna, Aura Salla, Marietje Schaake and Reinhilde Veugelers Topic: Digital economy and innovation, Inclusive growth Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 2, 2021
Read about event More on this topic
 

Past Event

Past Event

Monetary and macroeconomic policies at the crossroads

Bruegel Annual Meetings, Day 2- In this session we would like to discuss monetary and macroeconomic policies after Covid-19.

Speakers: Grégory Claeys, Per Callesen, Gita Gopinath, Jorge Sicilia Serrano and Lawrence H. Summers Topic: Banking and capital markets Location: PALAIS DES ACADEMIES, RUE DUCALE 1 Date: September 2, 2021
Load more posts