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The case for market-based stress tests

Vickers, John (2019), “The case for market-based stress tests“, VOX  CEPR Policy Portal, June

The stability of the financial system depends on the capital of banks and other financial institutions. But the measurement of bank capital depends on regulatory accounting methods, which, as events a decade ago showed dramatically, do not always reflect economic realities in a timely fashion. This column argues that market-based measures should play a greater role in regulatory assessment than is current practice, in particular in stress tests.

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