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International Monetary Fund
This technical note presents stress testing of banking and insurance on the Isle of Man (IOM). The stress tests for the IOM Financial Sector Assessment Program Update have been designed to yield as comprehensive and detailed a picture as possible within the constraints of the approach and available data. Stress tests have been performed both by individual institutions based on the parameters and scenarios agreed between the authorities and IMF staff, and, at an aggregate level and in many instances, by the authorities themselves.
International Monetary Fund. Monetary and Capital Markets Department
This paper summarizes the stress tests (ST) undertaken for the Malaysian banking system as part of the Financial Sector Assessment Program (FSAP). All banks were subject to solvency, liquidity and contagion tests in the macroeconomic stress testing set-up. The solvency tests assessed the resilience of the Malaysian banking system under three macroeconomic scenarios from 2012 to 2016. Single year bottom up (BU) sensitivity tests for Malaysian banks covered various single-factor credit and market risk shocks. A multi-factor BU sensitivity liquidity test was also carried out by participating banks and extended to not only key onshore banks but covered some Labuan entities and overseas subsidiaries. The findings suggest that the onshore banking system in Malaysia has substantial capital buffers to absorb credit losses on its credit risk exposures. Conventional banks can benefit from buffers provided by significant income as a first line of defense against credit losses. Some larger domestic banks benefit from income in terms of strong revenues from domestic operations as well as potential income from overseas operations.
International Monetary Fund. Monetary and Capital Markets Department

banking system (see Contagion Risk STs). 29 Sensitivity Analysis—Single Factor stress tests 40. Single-factor sensitivity tests covered a variety of credit and market risks . Five single-factor credit shocks and seven single-factor market risks were applied to all 36 banks in the sample ( Appendix 5 ). The sensitivity tests are assumed to be comparative static changes with no offsetting capital impact allowed, to obtain a clearer view of capitalization changes. In addition, no earnings buffer is assumed, and all credit and market risk shocks directly

International Monetary Fund

Intra-Group Exposures: The Case of KSFIOM 2. Liquidity Risk Shocks 3. Credit Risk Shocks 4. Market Risk Shocks Appendix 1. Understanding The Dynamics For The Life Insurance Sector G lossary BU Bottom-up approach BPS Basis points CAR Capital adequacy ratio UK FSA UK Financial Services Authority FSAP Financial sector assessment program FSC Financial Supervision Commission FX Foreign exchange IOM Isle of Man IMF International Monetary Fund

International Monetary Fund. Monetary and Capital Markets Department

Approach 4. Solo Entity Level Stress Testing 5. Solo Entity Parent Bank Level Stress Testing 6. Banking Group (Consolidated) Level Stress Testing 7. Macroeconomic and Asset Price Variables 2012–2016 8. Top-Down System and Bank-by-Bank Solvency Stress Test Results 9. Bottom-Up System and Bank-by-Bank Solvency Stress Test Results 10. Bottom-Up Capital Distributions by Banks 11. Bottom-Up Single-Factor Credit and Market Risk Shocks on Tier 1 (CCR) Appendices 1. Indicators of Financial System Soundness, 2006–2011 2. Risk Assessment Matrix 3

International Monetary Fund. Monetary and Capital Markets Department

. Impact of Financial Institutions’ Distress on Solvency Risk C. Exploratory Analysis of Liquidity-at-Risk SYSTEMIC RISK ANALYSIS A. Scope of the Stress Test B. Network Analysis C. Systemic Risk Analysis References FIGURES 1. Banking System Overview 2. Banking Sector Developments 3. Mortgage Lending Growth 4. Macroeconomic Scenario 5. International Macroeconomic Scenario 6. Overview of Stress Testing of the Banking Sector 7. Credit Risk for Housing Loans 8. EDF Corporate Exposures, Quantile Approach 9. Selected Market Risk Shocks 10

International Monetary Fund. Monetary and Capital Markets Department

assets in the system. The impact of market risk shocks on credit losses and/or liquidity needs was small. Interconnectedness risk in the system is limited . No specific contagion test was conducted in the context of the FSAP update. The central bank, however, shared detailed results of the domino-effect simulation reported in its December 2012 report. The results showed that only three commercial banks could trigger second round defaults, with the banks affected representing less than 2 percent of the assets in the system. All the tests suggest the banking system

International Monetary Fund

Tables 1. Financial Soundness Indicators for the Banking Sector 2. Balance Sheet of Banking System, end 2009 3. Financial System Structure, 2003-09, by Sector 4. Stress Test Results for the Banks 5. Scenario Analysis for Banks 6. Additional Solvency Tests for Credit Risk 7. Liquidity Stress Test for Banks 8. Insurance Sector Indicators 9. Stress Test Results for the Insurance Sector (end 2009 Data) Boxes 1. Market Risk Shocks 2. Credit Risk Shocks 3. Tests Assessing Credit Concentration Risk 4. Tests Assessing operational Risk 5

International Monetary Fund

support to maintain capital levels. Overall, these negative effects remain small on a system-wide basis. Market risks 32. Market risk shocks gauge the direct effect of instantaneous shocks on balance sheet and capital or solvency ratios. Market risk shocks are thus a useful measure for the effects of unexpected large shocks. Stress testing for market risks in this way is a generally accepted practice in risk management and is performed at high frequency (normally daily for certain parts of the trading book). Market risk stress tests are generally not designed