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Outcomes from the 2017 stress test of major banks

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Abstract
The Reserve Bank uses stress tests to assess the soundness of the financial system. This article summarises results from a recent exercise involving the four largest New Zealand banks. The test modelled a severe macroeconomic downturn scenario and an operational risk event related to mortgage lending misconduct. Consistent with previous tests, results suggest that strong underlying profitability from repricing actions to maintain their net interest margins would allow these banks as a group to absorb significant losses through the stress scenario without breaching their minimum capital requirements. While the test demonstrates these banks’ resilience, there remains uncertainty as to how such scenarios would unfold in reality.

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  • Charles Lilly, 2018. "Outcomes from the 2017 stress test of major banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 81, pages 1-18, July.
    • Handle: RePEc:nzb:nzbbul:jul2018:9
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    File URL: https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2018/2018jul81-08.pdf
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    References listed on IDEAS

    as
    1. International Monetary Fund, 2017. "New Zealand: Financial Sector Assessment Program: Technical Note-Stress Testing the Banking Sector and Systemic Risk Analysis," IMF Staff Country Reports 2017/119, International Monetary Fund.
    2. World Bank & International Monetary Fund, 2017. "Financial Sector Assessment," World Bank Publications - Reports 26016, The World Bank Group.
    3. Marianne Gizycki & Philip Lowe, 2000. "The Australian Financial System in the 1990s," RBA Annual Conference Volume (Discontinued), in: David Gruen & Sona Shrestha (ed.),The Australian Economy in the 1990s, Reserve Bank of Australia.
    4. International Monetary Fund, 2017. "Japan: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing the Financial Sector," IMF Staff Country Reports 2017/285, International Monetary Fund.
    5. David Byrne & Robert Kelly & Conor O'Toole, 2022. "How Does Monetary Policy Pass‐Through Affect Mortgage Default? Evidence from the Irish Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 2081-2101, October.
    6. International Monetary Fund, 2017. "New Zealand: Financial Sector Assessment Program: Technical Note-Regulation and Oversight of Financial Market Infrastructures," IMF Staff Country Reports 2017/115, International Monetary Fund.
    7. International Monetary Fund, 2017. "Finland: Financial Sector Assessment Program: Technical Note-Banking Supervision," IMF Staff Country Reports 2017/003, International Monetary Fund.
    8. International Monetary Fund, 2017. "Luxembourg: Financial Sector Assessment Program: Technical Note-Fund Management: Regulation, Supervision, and Systemic Risk Monitoring," IMF Staff Country Reports 2017/257, International Monetary Fund.
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