Financial Stability through Stress Testing

Abstract

Currently, there is a great deal of discussion about the financial sector. Banks, in particular, face a significant challenge when determining how much capital to allocate to protect themselves against various types of risk. To determine whether or not the bank's capital ratios are adequate at this time, the secondary method is to conduct stress testing. In country-specific financial stability reports, stress testing was first mentioned as part of the FSAP (Financial Sector Assessment Program), which focused currently, the financial sector is the subject of much debate. Specifically, banks face a significant challenge when deciding how much capital to invest in protecting themselves from various risk types. When stress testing was first mentioned as part of the FSAP (Financial Sector Assessment Program), it was incorporated into country-specific financial stability reports focused on economic analysis. Initially, they only participated in FSAP in part; later, Organizations like the IMF and the World Bank, as well as senior management, regularly used them to assess financial sector stability. Research into the theoretical underpinnings of stress tests, which are commonly used in developing countries like Turkey, is underway. Anahtar Kelimeler: on economic analysis, which was first introduced into the program, covers banking, financial stability, risk management, and stress tests. While initially participating in a limited number of exercises, they were later hired by regularity institutes like the IMF to conduct financial sector stability assessments. A theoretical perspective will be taken on stress tests, which are widely used in developing countries like Turkey.