Effective Practices of Macroprudential Stress Testing as a Tool of Increasing the Stability of Russian Financial System in the Context of Macroeconomic Shocks

Abstract

The article examines the evolution of the prudential approach to banking regulation, examines the practical contribution of the Basel Committee on Banking Supervision to the development and implementation of internationally unified practices and procedures for stress testing and supervision. The authors share the point of view that the existing methods and practices of stress testing still need improvements and methodological improvements, since they regularly allow the practical implementation of adverse scenarios leading to financial shocks and global crises. As a significant disadvantage of many actively used stress testing models, it is noted that they are often focused on complex, highly bureaucratic procedures for the preparation and analysis of financial statements, the main purpose of which is to assess the probabilities and sizes of losses and identify scenarios for the development of the situation for each specific bank, and no risks for the financial system as a whole. The authors come to the conclusion that it is advisable to prioritize the use of alternative stress testing models in crisis and post-crisis conditions, the forecasts within which are based on the actual values of financial market indicators, macroeconomic variables, and other open data. Special attention is paid to the stylized CLASS model, based on simple econometric models, as well as stress testing the current market value of V-lab. Based on the results of the study, the authors come to a number of conclusions that the role of the macroeconomic component in the procedures, methods, and algorithms for macroprudential stress testing used in Russia should increase, the degree of involvement and the sphere of responsibility for its results of key institutional units of the public administration system should expand, and macroprudential stress testing itself should not be limited to supervisory stress testing in everyday practice.

Keywords

• macroprudential regulation
• banking regulation
• macroprudential policy
• stress testing models
• financial system stability