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The Adoption of Stress Testing: Why the Basel Capital Measures were Not Enough
Company: Federal Reserve Bank of Atlanta
Company Url: Click here to open
Year Of Publication: 2013
Month Of Publication: December
Pages: 21
Download Count: 8
View Count: 1259
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 12-29-2013
Publisher: Administrator
Summary
The Basel capital adequacy ratios lost credibility with financial markets during the crisis. This paper argues that failure was the result of the reliance of the Basel standards on overstated asset values in reported equity capital. The United States’ stress tests were able to assist in restoring credibility, in part because they could capture deterioration in asset values. However, whether stress tests will prove equally valuable in the next crisis is not clear. Some of the weaknesses in the Basel ratios are being addressed. Moreover, the U.S. tests’ success was the result of a combination of circumstances that may not exist next time.
WP 2013-14
Author(s)
Wall, Larry D. Sign in to follow this author
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