Banking's Final Exam

Stress Testing and Bank-Capital Reform

Morris Goldstein

Peterson Institute for International Economics

Banking's Final Exam

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Pub Date: April 2017

ISBN: 9780881327052

250 Pages

Format: Paperback

List Price: $23.95£20.00

Banking's Final Exam

Stress Testing and Bank-Capital Reform

Morris Goldstein

Peterson Institute for International Economics

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In the wake of the global economic and financial crisis, bank supervisors in the United States and the European Union carried out a set of "stress tests" over the 2009-15 period. The objective was to determine which banks could survive severely adverse economic scenarios and to order corrective measures for vulnerable institutions. How effective was this exercise? In Banking's Final Exam, one of the world's leading experts on banking regulation concludes that the tests administered on both sides of the Atlantic suffered from several fundamental weaknesses that, unless corrected, can produce a false reassurance about the safety and soundness of the banking system. The author recommends a number of important steps for the future design and conduct of these tests, arguing that they are needed if stress testing is to become the central pillar of bank supervision worldwide. The banking industry is likely to resist these steps as harmful, but this book explains why their argument does not hold water.

About the Author

Morris Goldstein, nonresident senior fellow at the Peterson Institute, has held several senior staff positions at the International Monetary Fund (1970–94), including Deputy Director of its Research Department (1987–94). From 1994 to 2010, he held the Dennis Weatherstone Senior Fellow position at the Peterson Institute. He has written extensively on international economic policy and on international capital markets.