Stress testing in Norges Bank before and during the crisis - an overview
- Gøril B. Havro
- Economic Commentaries
Stress testing is a central tool in assessing the outlook for and risks to financial stability, and a tool that has received increased attention in connection with the global financial crisis. Since 2004, Norges Bank has published stress tests in its biannual Financial Stability reports. This commentary reviews the development of Norges Bank’s stress tests from 2008 to spring 2010.
Prior to the crisis, stress tests focused primarily on domestic shocks. Increased funding costs were viewed as a risk, but the main stress driver was the fragility of the Norwegian housing market. The scenarios were, however, and contrary to many stress tests carried out elsewhere, deeper than the real impact seen in 2008 and 2009. The stress test published in early 2009 was marked by the highly uncertain outlook for financial stability. It showed that banks might fail to meet capital adequacy requirements if the crisis were to escalate further. Norges Bank’s stress scenarios were steeper than scenarios published by Sveriges Riksbank and Danmarks Nationalbank during the same period.
This series consists of short, signed articles on current economic issues and are only published on Norges Bank’s website.