Talk:Stress test (financial)

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Deletion discussion

Bank stress tests are a critical response to the Financial crisis of 2007–2008. Due to the highly interconnected nature of the global financial system if a very large bank fails in one country it can have disastrous consequences well beyond its borders. Stress testing banks helps regulators determine if each institution can endure a reasonable amount of stress.

Each regulator, and each large bank subjected to these stress test spend millions planning and conducting these tests. The testing methodology was relatively nascent in 2009 when they began and has expanded rapidly. Likewise the number of banks subject to stress testing is likely to increase substantially.

Each year's test is "a story in itself" as the state of the art in stress testing undergoes rapid evolution. Likewise the safety and stability of the individual banks tested is quite dynamic.

Wikipedia articles were written in 2009 (US) and 2010 and 2011 in the (EU) covering stress test tests. Other years are stub articles that ultimately point to the test program, results. If there is objection to short stub articles this page could point to relevant URLs of detailed results and those might be eliminated. For example:

My personal preference would be for that not to happen. For instance, it's good to have the stub 2013 Comprehensive Capital Assessment Review (CCAR) in place right now as the 2013 test program is already published, and results should appear in March. If authors are motivated to write an article on it, the stub helps keep things organized. Likewise the stub offers a talk page if there are less formal comments readers want to make.

I'm not aware if Asian regulators forced Asian banks to stress test and what the results were?

While this topic is primarily financial I can assure more academically oriented Wikipedians that there are an immense number of Phds working on bank stress tests around the world, from a variety of disciplines including statistics, mathematical modeling, engineering, economics, etc. The challenge is huge and indeed global. Also, as stress testing migrates to the next tiers down in bank size the popularity of the topic may become more even more widespread. Rick (talk) 16:29, 19 February 2013 (UTC)[reply]

Not a Disambiguation Page, a stub Broad-Concept Article

This page started out as a Disambiguation page however BOTs found many incoming links so that fell into a questionable area. Wikipedia:Disambiguation pages with links When a reader came in focused on the topic "Bank Stress Tests" it was assumed they most likely wanted detailed information on a bank they were interested in, and likely geographically close to. That was seen as a possible "disambiguation" task. However, a stub class, Broad-concept article also works great. See: Wikipedia:Disambiguation#Broad-concept articles.

In writing articles on these subjects, it is useful to directly address the scope of the term, and the history of how the concept has developed. Each of the examples of the concept or type of thing should be included at some point in the article, possibly in a list, so that no information is lost from what would have been presented in the disambiguation page format. Consider using Wikipedia:SUMMARY style to incorporate information about the subtopics into the main article.

Scope: Bank Stress Tests, must be related to a bank, not an all inclusive article about every technical aspect of stress testing in general. Main focus is large banks, and stress testing mandated by local regulators to help mitigate overall Systemic risk.

History: While risk management techniques, including stress testing, were well established at banks prior to the Financial crisis of 2007–2008 they received exponentially more attention directly after. Stress tests became a topic of rather intense, unified, global interest and research. The results of early stress testing has already engendered ample discussion between large banks and regulators, and between regulators from one country or region with another. The concept "the devil is in the details" is clearly in play. Regulating bank risk taking activities directly impacts near and far term profitability. Global banks wield enormous financial resources, including substantial resource allocations to proactively influencing regulatory and political affairs.

Cross Reference: The major cross reference in this article is to the annual stress testing programs applied by each country, or region, to banks under their jurisdiction. Over time the evolutionary history may be of interest. Regulators will innovate and global size banks will respond.

SUMMARY style: Each of the annual testing programs, with program design and program results should remain a separate article. In many instances that article will include a detailed table of which banks participated, various results, etc. Rolling all those detailed tests into this Broad-Concept Article is not a good idea as the length will become unwieldy. 10 years x 3 regions x 10-20 banks per region .... expanding to 50-100 banks in each region as the program unfolds...clearly too much for a broad scope, entry level, overview article.

Other: A simple, general discussion of bank stress tests may be appropriate, including some historical aspects. Some thought-starters for a historical section:

was Value at Risk (VaR) the precursor to stress testing?
- VaR was a fairly new mathematical technique that was wholesale adopted by regulators, perhaps prematurely and naively? Was VaR misunderstood and was it "regulated in" allowing banks to operate with less Net Capital than a better informed approach might have taken? When Lehman blew up, etc, was VaR based Net Capital, sanctioned and "blessed" by the regulators, sufficient to protect against mortgage fraud and the resulting cascading failures?
are the early stress test programs well informed by VaR's shortcomings?
can systemic risk actually be mitigated with bank stress testing?
are regulators stress test scenarios sufficiently adverse to adequately test for systemic risk, and its consequences? For example, do the current round stress tests introduce testing scenarios on a level with wholesale fraud and corruption in mortgage lending, fraud in credit ratings, fraud in LIBOR and other key rates, all occurring simultaneously?
Do the stress tests adequately model fear and contagion and interconnectedness?
Are current stress testing programs oddly similar to the history of VaR? Perhaps too much reliance on complex, not completely understood, early stage risk technology, and then '"driving the car by looking only in the rear view mirror"?

Rick (talk) 16:38, 20 February 2013 (UTC)[reply]

I suspect it will be easy to find books and articles to use as references for all of these points and criticisms. Please have at it. Cheers! bd2412 T 17:09, 20 February 2013 (UTC)[reply]

Merge proposal

I have found some references for the history of bank stress tests which support the article on the concept. I believe that it would now be appropriate to merge the list back into the article as a section. In particular, the Quagliariello reference is an excellent source for information on this practice. bd2412 T 03:25, 23 February 2013 (UTC)[reply]

Opposed List of bank stress tests is well researched, fully referenced, cross referenced, and contains a more full set of listings. A main article Stress test is long standing and is the place for the stress testing discussion in general. Bank stress test could merge its single narrative paragraph into into that article, or, it might be better tucked into the long standing (and in desperate need of updating) Bank regulation article. Currently all but a single reference are to light weight newspaper articles, or references to the actual program design and results of specific annual tests, which are better covered and more up to date in the full List of bank stress tests. The title Bank stress test is singular. The contents of List of bank stress tests is both plural, and rapidly growing. Its purpose is to cover individual stress tests, year by year, by regulator, and region. In Bank stress test there are many references to a single substantive work (Quagliariello, 2009). As of 2013, that work is quite dated. For example in the U.S. stress testing was implemented shortly after the 2008 crash in 2009, the results of which were not likely even in before that book was published. That first year of testing was a "quick and dirty" one vs. today. A massive overhaul was conducted after the 2009 program ran (taking two years to devise), and was incorporated into the 2011 and later programs. The methodology is constantly updated. A general article devoted to Bank stress test will either have to be quite general and more static (and therefore dated), or constantly updated as to methodology. To do that the constantly updated individual annual programs will have to be consulted and then synthesized and updated on an annual basis all at an appropriate level for a general WikiPedia audience. Realistically, who will do that? Also, specific testing scenarios by year are of particular interest, including results down to a singular bank. UK and Asian programs also continue to rapidly evolve. If there is a need to for consolidation (and is there really a need to reduce articles?) suggest merging Bank stress test into Bank regulation or Stress test. Or, just flesh out a full, freestanding Bank stress test article in classic narrative / encyclopedia format, discussing the topic hopefully with some enduring value. Leave the List of bank stress tests page separate, to be the constantly dynamic one, the one with the easy to use list/table reference layout.Rick (talk) 04:48, 23 February 2013 (UTC)[reply]

I think you mean Stress testing. I was not aware of that article, and it does seem like a good place to house the current content of this page. bd2412 T 05:28, 23 February 2013 (UTC)[reply]

Yes you are correct Stress testing is currently where there is standing coverage. Looks like that area could use a massive tidy up. Perhaps the follwing moves?

Stress test to Stress test (disambiguation)
Stress testing to Stress test - the main article
Stress test (physical) - jr article
Stress test (financial) - jr article
Stress test (software) - jr article

Rick (talk) 06:39, 23 February 2013 (UTC)[reply]

Yes, I completely agree with that plan of action. bd2412 T 17:18, 24 February 2013 (UTC)[reply]
- Could someone make this proposal over on Wikipedia:Articles for deletion/2011 Comprehensive Capital Assessment Review (CCAR) taking into account the nominated articles there?--RadioFan (talk) 17:22, 24 February 2013 (UTC)[reply]

Oppose - oppose merger of List of bank stress tests into Stress test (financial) a list is a list, article is general... more above. Re the stubs, will vote for delete on those individual discuss pages. Rick (talk) 18:28, 25 February 2013 (UTC)[reply]