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This paper explains the treatment of sovereign risk in macroprudential solvency stress testing, based on the experiences in the Financial Sector Assessment Program (FSAP). We discuss four essential steps in assessing the system-wide impact of sovereign risk: scope, loss estimation, shock calibration, and capital impact calculation. Most importantly, a market-consistent valuation approach lies at the heart of assessing the resilience of the financial sector in a tail risk scenario with sovereign distress. We present a flexible, closed-form approach to calibrating haircuts based on changes in expected sovereign defaults affecting bank solvency during adverse macroeconomic conditions. This paper demonstrates the effectiveness of using extreme value theory (EVT) in this context, with empirical examples from past FSAPs.

Financial risk management. --- Liquidity (Economics) --- Banks and banking. --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Assets, Frozen --- Frozen assets --- Risk management --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Investments: Bonds --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- General Financial Markets: General (includes Measurement and Data) --- Financial services law & regulation --- Monetary economics --- Investment & securities --- Credit risk --- Stress testing --- Yield curve --- Credit default swap --- Financial regulation and supervision --- Bond yields --- Financial sector policy and analysis --- Financial services --- Financial risk management --- Interest rates --- Banks and banking --- Credit --- Bonds --- United Kingdom

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Interest rates --- Monetary policy --- Inflation (Finance) --- Economic development --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Finance --- Natural rate of unemployment --- Monetary management --- Currency boards --- Money supply --- Money market rates --- Rate of interest --- Rates, Interest --- Interest

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This paper provides a conceptual overview of key aspects of the design and implementation of solvency stress testing of Islamic banks. Based on existing regulatory standards and prudential practice, the paper explains how Islamic finance principles and their impact on various risk drivers affect the capital assessment of asset-oriented financial intermediation under stress. The formal specification of these risk factors helps operationalize and integrate the stress testing of Islamic banks within established frameworks for financial stability analysis.

Banks and Banking --- Finance: General --- Islamic Banking and Finance --- Central Banks and Their Policies --- General Financial Markets: Government Policy and Regulation --- Comparative Analysis of Economic Systems --- Other Economic Systems: Public Economics --- Financial Economics --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Banking --- Financial services law & regulation --- Finance --- Islamic banking --- Market risk --- Credit risk --- Stress testing --- Financial services --- Financial regulation and supervision --- Financial sector policy and analysis --- Islamic finance --- Financial risk management --- Banks and banking --- Islamic countries --- Iran, Islamic Republic of

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Prudential regulation of infrastructure investment plays an important role in creating an enabling environment for mobilizing long-term finance from institutional investors, such as insurance companies, and, thus, gives critical support to sustainable development. Infrastructure projects are asset-intensive and generate predictable and stable cash flows over the long term, with low correlation to other assets; hence they provide a natural match for insurers' liabilities-driven investment strategies. The historical default experience of infrastructure debt suggests a "hump-shaped" credit risk profile, which converges to investment grade quality within a few years after financial close-supported by a consistently high recovery rate with limited cross-country variation in non-accrual events. However, the resilient credit performance of infrastructure-also in emerging market and developing economies-is not reflected in the standardized approaches for credit risk in most regulatory frameworks. Capital charges would decline significantly for a differentiated regulatory treatment of infrastructure debt as a separate asset class. Supplementary analysis suggests that also banks would benefit from greater differentiation, but only over shorter risk horizons, encouraging a more efficient allocation of capital by shifting the supply of long-term funding to insurers.

Banking Regulation --- Basel III --- Credit Risk --- Education --- Educational Sciences --- Energy --- Energy and Environment --- Energy Demand --- Finance and Financial Sector Development --- Financial Crisis Management & Restructuring --- Financial Structures --- Infrastructure --- Insurance Capital Standard --- Insurance Regulation --- Project Finance --- Solvency --- Solvency Regime --- Transport

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This paper investigates the generalized parametric measurement methods of aggregate operational risk in compliance with the regulatory capital standards for operational risk in the New Basel Capital Accord ("Basel II"). Operational risk is commonly defined as the risk of loss resulting from inadequate or failed internal processes and information systems, from misconduct by people or from unforeseen external events. Our analysis informs an integrated assessment of the quantification of operational risk exposure and the consistency of current capital rules on operational risk based on generalized parametric estimation.

Banks and Banking --- Econometrics --- Finance: General --- Macroeconomics --- General Financial Markets: General (includes Measurement and Data) --- Financial Institutions and Services: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Criteria for Decision-Making under Risk and Uncertainty --- Estimation --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: Government Policy and Regulation --- Personal Income, Wealth, and Their Distributions --- Financial services law & regulation --- Econometrics & economic statistics --- Banking --- Operational risk --- Estimation techniques --- Capital adequacy requirements --- Basel Core Principles --- Financial regulation and supervision --- Econometric analysis --- Personal income --- National accounts --- Financial risk management --- Econometric models --- Banks and banking --- Asset requirements --- State supervision --- Income --- United States --- Bank capital --- Risk --- Operational risk. --- Econometric models.