New stress-testing framework to assess the capital adequacy of Finnish banks

Abstract

Stress tests are important analytical tools that measure the resilience of banks to sudden, dramatic disruptions to the operational environment. The Bank of Finland and the Financial Supervisory Authority (FIN-FSA) have together developed a new stress testing framework as a more flexible means of testing the loss-absorbing capacity of banks when facing certain local systemic risks. The tool can also be used, for example, when setting macroprudential (capital) buffers.