Publication detail

Bank Stress Tests as an Information Device for Emerging Markets: The Case of Russia

Author(s): Ing. Zuzana Fungáčová M.A., Ph.D.,
doc. PhDr. Ing. Ing. Petr Jakubík Ph.D. Ph.D.,
Type: Articles in journals with impact factor
Year: 2013
Number: 0
ISSN / ISBN:
Published in: Czech Journal of Economics and Finance, 63(1), p. 87 - 105
Publishing place: Prague
Keywords:
JEL codes: G28, P34, G21
Suggested Citation:
Grants: GACR 403/10/1235 (2010-2014) Institutional Responses to Financial Market Failures
Abstract: The recent financial crisis emphasized the need for effective financial stability analyses and tools for detecting systemic risk. This paper looks at the assessment of banking sector resilience through stress testing. We argue such analyses are valuable even in emerging economies, which suffer from limited data availability, short time series, and structural breaks. We propose a top-down stress test methodology that employs relatively limited information to overcome this data problem. Moreover, as credit growth in emerging economies tends to be rather volatile, we rely on a dynamic approach projecting key balance sheet items. The application of our proposed stress test framework to the Russian banking sector reveals high sensitivity of the capital adequacy ratio to the economic cycle. This shows up in both of the two-year macroeconomic scenarios considered: a baseline and an adverse one. Both scenarios indicate a need to increase the capital of the Russian banking sector. Furthermore, given that Russia’s banking sector is small and fragmented by comparison with advanced economies, a loss of external financing could cause profound economic stress, especially for small and medium-sized enterprises. The Russian state has a low public debt-to-GDP ratio and plays a decisive role in the banking sector. These factors allow sufficient fiscal space for recapitalization of problematic banks under our proposed baseline and adverse scenarios.

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