Description

The stress tests are tools widely used by commercial banks, bank supervisors, central banks and international organizations, each of them with different objectives. The Central Bank of Chile uses them to evaluate potential impacts of aggregate shocks on the stability of the banking system as a whole. The development of these tests at this institution began more than a decade ago and now includes market and credit risks. Over the years, substantial progress has been made in both the estimation methodology and the data used, as well as in the delivery of the results. In the present update, the probabilities associated to the stress scenario are estimated. As for the model, its statistical significance is improved by including additional variables suggested by economic theory. In addition, it includes a section of indicators that support the reading and interpretation of the results. Thus, this document provides a detailed review of recent improvements and identifies potential improvements.