IMF paper backs stress test ‘rules of thumb’
Stress tests should utilise "rules of thumb" when other more reliable methods are in short supply, according to a working paper published by the International Monetary Fund (IMF) yesterday.
In Rules of Thumb for Bank Solvency Stress Testing, Daniel Hardy and Christian Schmieder argue that unless a supervisor "knows with some precision the behavioural relationships" between credit losses, pre-impairment income, credit growth during crises and bank solvency, then a "simple rule of thumb may
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