Banque de France research proposes framework to address stress-test failings
A working paper, published by the Banque de France on March 15, seeks to provide a framework for choosing the initial shocks to be included in stress tests so they better reflect "extreme, but plausible" scenarios.
In Calibrating Initial Shocks in Bank Stress Test Scenarios, authors Olivier Darne, Guy Levy-Rueff and Adrian Pop note that stress tests have been criticised for failing to accurately portray extreme outcomes. They say US stress tests conducted in 2010 were based on less extreme
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