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Stress testing has become the risk management tool du jour in the wake of the global financial crisis. In countries where the information reported by financial institutions is considered to be of sufficiently good quality, and supervisory and regulatory standards are high, stress tests can be of significant value. In contrast, the proliferation of stress testing in underdeveloped financial systems with weak oversight regimes is fraught with uncertainties, as it is unclear what the results actually represent and how they could be usefully applied. In this paper, problems associated with stress tests using weak data are examined. We offer a potentially more useful alternative, the "breaking point" method, which also requires close coordination with on-site supervision and complemented by other supervisory tools and qualitative information. Excel spreadsheet templates of the stress tests presented in this paper are provided.

Banks and Banking --- Finance: General --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Finance --- Banking --- Financial services law & regulation --- Loans --- Nonperforming loans --- Stress testing --- Loan classification --- Financial risk management --- Banks and banking --- State supervision

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Loan review is a process routinely used by banks to assess the current value of loan portfolios. Provisioning is a technique to translate loan review results into the balance sheet. It allows for ongoing valuation of loans. Both are core elements of credit risk management and important to prudential oversight. As illustrated in this paper, valuation feeds into indicators of overall bank soundness and key macroprudential indicators. Country practices and recent moves to more forward-looking models are surveyed. Macroeconomic linkages are highlighted, including tax treatment of provisions, variables of the monetary survey, and procyclical aspects of loan valuation systems.

Banks and Banking --- Industries: Financial Services --- Money and Monetary Policy --- Business Taxes and Subsidies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Finance --- Financial services law & regulation --- Banking --- Monetary economics --- Loans --- Nonperforming loans --- Capital adequacy requirements --- Loan classification --- Financial institutions --- Financial regulation and supervision --- Credit --- Money --- Banks and banking --- Asset requirements --- State supervision --- Czech Republic

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This paper studies how Uruguay's regulatory framework was gradually strengthened to address shortcomings identified during the 2002-03 crisis, to align with international standards and, more recently, to deal with cyclical pressures resulting in an acceleration of bank lending. In particular, regulatory reforms pertaining to loan classification and provisioning as well as liquidity requirements are reviewed and evaluated against best practices. The paper concludes that prudential regulation in Uruguay now generally conforms to high standards while also embracing innovative elements such as dynamic provisioning.

Finance --- Business & Economics --- Banking --- Banks and banking --- Liquidity (Economics) --- State supervision --- Assets, Frozen --- Frozen assets --- Agricultural banks --- Banking industry --- Commercial banks --- Depository institutions --- Financial institutions --- Money --- Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial services law & regulation --- Monetary economics --- Loans --- Credit --- Credit risk --- Loan classification --- Liquidity requirements --- Financial regulation and supervision --- Financial risk management --- Uruguay