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Stress tests on banks 'too mild': central bank deputy governor

Stress tests on banks 'too mild': central bank deputy governor

Taipei, Nov. 7 (CNA) The subprime mortgage crisis in the United States was an important turning point for stress tests on U.S. and European banks because it showed they were "too mild," the deputy chief of Taiwan's central bank said Monday. Speaking on the opening day of a five-day conference on bank stress tests in Taipei, central bank Deputy Governor Yang Chin-lung said the stress tests performed by banks before the crisis failed because they underestimated the possibility of certain real-world situations. In the future, simulations used in the stress tests needed to more closely reflect "reality," he said. Yang added that the eurozone crisis had again demonstrated the inadequacy of simulated stress tests used in the recent past, and he suggested that now was a perfect time to learn the lesson and impose tests that were even more realistic. Thomas Kick, a senior economist from Deutsche Bundesbank, said banks should design their own stress tests based on the environment in which they operate, and he underlined that stress tests were an important part of financial supervision. Stress tests simulate different adverse scenarios, such as market crashes, higher interest rates, or big increases in commodity prices, to determine whether a financial institution has adequate resources to respond effectively to the crisis. The conference, to run through Nov. 11, was jointly planned by a training center affiliated to the Conference of Governors of South East Asian Central Banks (SEACEN) and Germany's central bank Deutsche Bundesbank. It is being held to teach financial supervisory personnel how to run stress tests in a solid and steady manner, to introduce stress test content, and to discuss ways to integrate stress tests run by different countries. Twenty-nine financial supervisory representatives from Bangladesh, Cambodia, Indonesia, Fiji, Malaysia, Mongolia, Sri Lanka, Hong Kong and Taiwan attended the conference, in which experts from German and Indonesian central banks were invited to host seminars. (By Kao Chao-fen and Elizabeth Hsu)


Updated : 2021-05-10 07:56 GMT+08:00