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Andreas Jobst and Mr. Juan Sole
This paper provides a conceptual overview of key aspects of the design and implementation of solvency stress testing of Islamic banks. Based on existing regulatory standards and prudential practice, the paper explains how Islamic finance principles and their impact on various risk drivers affect the capital assessment of asset-oriented financial intermediation under stress. The formal specification of these risk factors helps operationalize and integrate the stress testing of Islamic banks within established frameworks for financial stability analysis.
Andreas Jobst and Mr. Juan Sole

potential the DCR banks face in practice (which can reduce capital), but all existing reserves are assumed to be available to absorb losses. Thus, capital adequacy ratio (CAR std ) is defined as C A R S t d = t o t a l ( b o o k ) e q u i t y ︷ c a p i t a l { + P E R e q u i t y + I R R R I A } O p R i s k + R W A t o t a l − ( R W A