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: Finance & Financial Regulation

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, Senior 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

Senior Fellow

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

matilda.sevon@bruegel.org

Read about event

Past Event

Past Event

Is there a way out of non-performing loans in Europe?

At this event we looked at the issue of non-performing loans in Europe. The event also saw the launch of the latest issue of "European Economy – Banks, Regulation and the Real Sector."

Speakers: Emilios Avgouleas, Giorgio Barba Navaretti, Giacomo Calzolari, Maria Demertzis, Martin Hellwig, Helen Louri and Laura von Daniels Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 6, 2017
Read about event

Past Event

Past Event

Fintech and the digital transformation of banking

FinTech is changing the financial sector. What are the challenges associated with this and what policies should we adopt in response?

Speakers: Xavier Corman, Cora van Nieuwenhuizen, Georgios Petropoulos, Ezequiel Szafir and Pēteris Zilgalvis Topic: Finance & Financial Regulation, Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 20, 2017
Read about event More on this topic

Past Event

Past Event

Lessons for the future governance of financial assistance in the EU

On 14th June, Randall Henning will present his latest book on the Euro crisis and we will discuss how financial assistance should be governed in the euro area in the future.

Speakers: Servaas Deroose, C. Randall Henning, Rolf Strauch and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 14, 2017
Read about event More on this topic

Past Event

Past Event

Substance requirements for financial firms moving out from the UK

In the run-up to Brexit, UK-based financial firms are considering how to organize their operations across the future divide between the UK and EU27. This event will discuss the regulatory requirements on how self-sustaining the operations in the EU should be, and implications for the single market and third countries.

Speakers: Gerry Cross, Simon Gleeson and Nicolas Véron Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 2, 2017
Read about event

Past Event

Past Event

Inclusive growth: global and European lessons for Spain

Can manufacturing still be a driver for inclusive growth around the world? What European and national policies can foster inclusive growth in Europe? What is the situation in Spain and what can Spain learn from the global and European experiences?

Speakers: Cristina Cabrera, Zsolt Darvas, Maria Demertzis, Alejandra Kindelán, Robert Lawrence and Federico Steinberg Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Calle Los Madrazo 36-38 Madrid Date: May 31, 2017
Read about event

Past Event

Past Event

Geo-blocking in the digital single market

Geo-blocking is a discriminatory practice that is wide-spread in EU. It prevents online customers from accessing and purchasing products or services from a website based in another member state

Speakers: Marine Elgrichi, J. Scott Marcus, Fabian Paagman, Bertin Martens, Georgios Petropoulos, Agustin Reyna, Gareth Shier, Werner Stengg and Roza von Thun Topic: European Macroeconomics & Governance, Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 30, 2017
Read about event More on this topic

Past Event

Past Event

Financial Times - Bruegel Forum: the future of Europe after the French election

The second event in the Financial Times - Bruegel Forum series will look at how the results of the French elections will affect Europe.

Speakers: Tony Barber, Jean Pisani-Ferry and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 11, 2017
Read about event More on this topic

Past Event

Past Event

Standardisation and patents: problems and policy options

Bruegel together with the Association for Competition Economics (ACE), is hosting an event on standardization and SEP licensing.

Speakers: Aleksandra Boutin, Georgios Petropoulos, Rebekka Porath, Pierre Regibeau and Hughes de la Motte Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 9, 2017
Read about event More on this topic

Past Event

Past Event

Protecting the privacy of electronic communications: getting the next steps right

Do the European Commission's recent initiatives put us on the right path?

Speakers: Nicholas Blades, Orla Lynskey, J. Scott Marcus, Alexander Whalen and Jeremy Rollison Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 25, 2017
Read about event More on this topic

Past Event

Past Event

Global outlook and policy priorities

At this event the Managing Director of the International Monetary Fund, Christine Lagarde, will speak about the global outlook and policy priorities, ahead of the 2017 IMF Spring Meetings

Speakers: Christine Lagarde, Jean-Claude Trichet and Guntram B. Wolff Topic: Global Economics & Governance Location: Brussels Date: April 12, 2017
Read article More on this topic More by this author

Blog Post

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read about event More on this topic

Past Event

Past Event

Can EMU survive a multi speed Europe?

On 6 April Bruegel, as in previous years, hosted the presentation of the Euro Yearbook, a collection of experts’ insights on the construction of the European Monetary Union through 2016.

Speakers: Pablo Zalba Bidegain, Maria Demertzis, Fernando Fernandez, Javier Méndez Llera, Karl Pichelmann and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 6, 2017
Load more posts