frm13年l2基础v2current issue克当前金融市场风险案例分析

地点： CurrentIssuesinFinancial OfRunesandSagas: sonLiquidityStressTestingUsinganIcelandExampleTailsoftheTheDogandtheChallengestoBusinessintheTwenty-FirstExchange-TradedFunds,MarketStructureandtheFlash2- 100%ContributionBreedsKeyConditionsHelpedSpreadoftheEconomicCrisisTheglobaleconomiccrisisoriginatedinthefinancialsystemsofsomeadvancedeconomies,butitquicklyspreadtoengulfmuchoftheglobaleconomy.Thenumberofsovereignsthathaveexperiencedconsiderablefiscaldifficultieslayismuchlargerthanthenumberoffinancialsystemsthatwentthroughsignificantproblemsatthestartofthecrisis.3- 100%ContributionBreedsKeyConditionsHelpedSpreadoftheEconomicCrisisConceptBaselII–

准准备金计入方式改Tier1资本Tier2风险敏感度大大提

市场风 操作风 >增加了内部模型法根据各业务部门资本要>增加了内部模型法根据各业务部门资本要=根据内模型核算的10日风核算，但也有高价值的3-4计量模型，对信贷4- 100%ContributionBreedsKeyConditionsHelpedSpreadoftheEconomicCrisisConceptBaselII–CreditCredit Credit Banks-optionBanks-optionShort-Note:Underoption1,thebankratingisbasedonthesovereigncountryinwhichitisincorporated.Underoption2,thebankratingisbasedonanexternalcreditassessment.Short-termclaimsaredefinedashavinganoriginalmaturitylessthenthreemonths.5- 100%ContributionBreedsKeyConditionsHelpedSpreadoftheEconomicCrisisConceptBaselPromotingcountercyclicalbufferstooffsetthepro-cyclicalamplificationoffinancialshocks.CapitalRequirementsincludingCapitalConservationBufferTierCore6- 100%ContributionBreedsKeyConditionsHelpedSpreadoftheEconomicCrisisAIMS:Exinthreekeyinitialconditionsthathelpedspreadoftheeconomiccrisisgloballyamongsovereigns.Theconfluenceofthreekeyinitialconditionslargelyexinstheseverityandspreadofthecrisis:Thebankingsystemsofmostmajordevelopedeconomiesenteredthecrisispoorlycapitalized,highlyleveraged,andwithhugematurityandcurrencybalancesheetmismatches.Majorsovereignshadnotaccumulatedadequatefiscalbuffersduringtheboompriortothecrisis.Thesmallreservesmeantthattheresponseprovedunsustainable,notleastgiventhelonger-termunfundedcommitmentsernmentsfaced.Theunprecedenteddegreeofinterconnectednessintheglobalfinancialsystemcomplicatedmattersfurther.Greaterfinancialintegrationinevitablycarriesgreaterresponsibility.7- 100%ContributionBreedsWaysFinancialSectorRisksareTransmittedtoAIMS:DescribethreewaysinwhichthefinancialsectorrisksaretransmittedtoWeaknessesinfinancialsectorbalancesheetscanbetransmittedfrombankstosovereignsthroughthreemainchannels.Creditbooms,whilemaskingweaknessesinfinancialsectorbalancesheets,makestheernment’sfiscalpositionappearmuchstrongerthanitactuallyis.Thismayunjustifiablygiveernmentstheconfidencetopursuepoliciesthatresultinincreasesinspendingthatareunsustainableinthelongrun.Anyconstraintsonlendingcausedbyadeteriorationinthebalancesheetsofbanksandotherfinancialinstitutionsresultinmacroeconomiccoststhatweakenfiscalaccountsfurther.Thiscanchokeoffthecreditsupplyand,unlessbalancesheetsarerepairedquickly,leadtoseriousdistortionsinitsallocation. revenuestodeclineand ernmentexpenditurestoincrease.Thepublicsectordeficitwidensandthecreditworthinessofthesovereign8- 100%ContributionBreedsWaysFinancialSectorRisksareTransmittedtoWhenlargesystemicallyimportantfinancialinstitutionsfacethethreatofbankruptcyintheabsenceofeffectiveresolutionregimes,sovereignsmayhavelittlealternativebuttoprovidethemwithfinancialsupportinordertopreservefinancialRegardlessofwhethertheernmentsupporttakestheformofliquidityassistance,directinjectionsofcapital,assetpurchaseprogrammesordebtguarantees,itisboundtoincreasetheexplicitorimplicitobligationsofthesovereign,andthusweakenitsbalancesheet.9- 100%ContributionBreedsWaysSovereignRisksareTransmittedtotheFinancialAims:Describefivewaysinwhichsovereignrisksaretransmittedtothefinancialsector.Ingeneral,adeteriorationintheperceivedcreditworthinessofsovereignscanaffectthefinancialsectorthroughfivemainchannels:ThefirstchannelinvolvesdirectportfolioThehigherbondyields(lowerbondprices)associatedwithhighersovereignriskcanhurtfinancialinstitutionsthroughtheirholdingsofdomesticandforeignsovereigndebt.ThesecondchannelworksthroughfundingSovereignsecuritiesareusedextensivelybybanksascollaltosecurewholesalefundingfromcentralbanks,privaterepomarketsandcoveredbondmarkets.Increasesinsovereignriskreducetheavailabilityoreligibilityofcollal,andhencebanks’fundingcapacity.10- 100%ContributionBreedsWaysSovereignRisksareTransmittedtotheFinancialThethirdchannelrelatestotheperceivedabilityofthesovereigntoprovideabackstoptobanksunderstrain.Aernmentthatisperceivedbymarketparticipantstobeinaweakerfiscalpositionprovideslesscredibleandvaluableguaranteesorfinancialsupporttobanksinitsjurisdiction.Thisincreasesthecreditriskofthesefinancial channelrelatestothepossibilityofernmentdebtcrowdingoutprivatesectordebt.Ifthesovereignlosesitsrisklessstatus,thelikelihoodofcrowdingoutincreases,asthetwoformsofdebt closersubstitutesininvestors’portfolios.11- 100%ContributionBreedsWaysSovereignRisksareTransmittedtotheFinancialFinally,alossofmarketconfidenceinsovereigndebtmaytriggerfiscalconsolidation.Thisisunambiguouslybeneficialinthelongterm.Intheshortterm,however,theneteffectisnotaseasytopredict.Fiscalconsolidationmayweakenaggregatedemandandeconomicactivity,weighingfurtheroncreditqualityandbankprofitability.Ifconfidencehasdeterioratedfarenough,fiscalconsolidationmayactuallybuoyeconomicactivity.12- 100%ContributionBreedsConceptSovereignriskisdefinedastheriskthataforeignernmentmaydefaultonaloanorfailtohonorbusinesscommitmentsduetoachangeinnational.Assessingcreditriskforsovereignnationsissignificantlymorecomplexthanforcorporate.Sovereigncreditevaluationinvolveseconomicrisk(theabilitytorepaydebtswhendue)andpoliticalrisk(thewillingnessto13- 100%ContributionBreedsAIMS:SummarizetheactivityofbanksandsovereignsintheEuropeanUnionduringthe2002-2007periodleadinguptotheeconomiccrisis.Inthe2002-2007period,therewerenosignsthatmarketparticipantssawthebuild-upinrisks.Thedebt-to-GDPratiosofmosternmentsinthedevelopedworldwerewithinwhataretypicallyconsideredsustainableranges.Sovereignbondmarketsandcreditratingagenciesgenerouslyrewardedernment’sbehavior.Banks,especiallylargeandinternationallyactiveones,wouldreportprofitsyearinandyearEquityinvestorscheeredenthusiastically,anddespitebanks’everincreasingleverage,creditratingagenciesandfinancialmarketparticipantsregardedthemassafe.Vulnerabilitieskeptgrowingbelowtheradar. ernmentscheeredalongsidemarketparticipants.Comcencywastheorderoftheday.14- 100%ContributionBreedsGlobalfinancialintegrationyedacrucialroleinfacilitatingleveragingOnthedemandInsomecountries(e.g.GreeceandItaly),themainborrowersfromabroadwereernmentsthatneededtofinancetheirexcessivespending.Inothers(e.g.SpainandIreland),banksdrewoninternationalcreditandinturnfinancedprivatecreditboomsintheirhomeeconomies.15- 100%ContributionBreedsOnthesupplyside,internationallyactivebanks(particularlythoseheadquarteredintheeuroarea)readily modatedthecreditdemandsofborrowersregardlessoftheirgeographicallocation.Euroareabanksturnedintothemain rsofcredittotheeuroareasectorswhoseindebtednessincreasedthemostduringthelastdecade.EuroareabankswerethemainforeignbanklenderstotheGreekandItalianpublicsectorsandtotheSpanishandIrishbankingEuroareabanksprovedmoreeagerthantheirpeerstofinanceriskierforeignsovereigns.(Italy,SpainandGreecevs.GermanyandFrance).16- 100%ContributionBreedsBankswereequallycomcentaboutrolloverriskintheinterbankManybecametoodependentoncheap,butunreliable,short-termfundingandfailedtobuildadequateliquiditybuffers.Understress,unsecuredfundingdriedupandbanksturnedincreasinglytocollalizedborrowing.TheECBEuroMoneyMarketSurveysreportedahalvinginoverallvolumesinunsecuredtransactionsbetweenearly2007andearly2010,withlongermaturitiesmorethanproportionallyreduced.Securedtransactionsrosefromlessthantwothirdsofallcashtransactionstomorethanthreequarters.17- 100%ContributionBreedsAshubrisbecamepervasive,underneaththesurfacetroubleInsomeeconomiesprivatecredit-to-GDPratiosandpropertypriceshadsoaredfarabovetheirlong-termtrends.However,financialinstitutions,unperturbedbysuchsignsofimpendingdanger,keptincreasingtheirleverage.Twotemporaryfactorsflatteredthefiscalbalancesofmostsovereignsinthedevelopedworld.Theexpansionaryphaseofthebusinesscycleboostedthepublicsector’saccount.Thecredit-andassetprice-intensiveboommadematterAllthisencouraged tospend 18- 100%ContributionBreedsActivityduringtheEconomicConceptAcreditdefaultswap(CDS)isafinancialswapagreementthattheselleroftheCDSwillcompensatethebuyerintheeventofaloandefaultorothercreditevent.ThebuyeroftheCDSmakesaseriesofpayments(theCDS"fee"or"spread")tothesellerand,inexchange,receivesapayoffiftheloandefaults.Allthingsbeingequal,atanygiventime,ifthematurityoftwocreditdefaultswapsisthesame,thentheCDSassociatedwithawithahigherCDSspreadisconsideredmorelikelytodefaultbythemarket,sinceahigherfeeisbeingchargedtoprotectagainstthishappening.19- 100%ContributionBreedsActivityduringtheEconomicAIMS:SummarizetheactivityofbanksandsovereignsintheEuropeanUnionduringtheeconomiccrisis.AIMS:DescribehowrisksweretransmittedamongbanksandsovereignsintheEuropeanUnionduringthecrisis,givingspecificThefirstsignsofstressinthefinancialsystemsurfacedinthesummerof2007.Initiallyinvestorsworriedmainlyaboutthehealthofcertainfinancialinstitutionsandlittleaboutsovereigncreditworthiness.EventhoughsovereignCDSspreadsformostdevelopedcountriesdidinchupslightlyduringtheinitialphaseofthecrisis,theincreasesintheCDSspreadsofbanksinthesamecountrieswereordersofmagnitudegreater.20- 100%ContributionBreedsActivityduringtheEconomicInSeptemberandOctober2008,alargenumberofsovereignsinthedevelopedworldprovidedsupporttotheirfinancialinstitutionsbyassetpurchaseprogrammes,debtguaranteesanddirectequityinjections.Withoutadequatefiscalbuffers,thefinancialassistanceThesameperiodsawthefirstsignsthatmarketparticipantswerebeginningtofactorintheeffectsoftheindirectchannelsinthefeedbackloopbetweenbankandsovereignrisk.WhiletheCDSspreadsoffinancialinstitutionsdeclined,thoseofrespectivesovereignsroseMoreover,notallthechangesinsovereignandbankCDSspreadswerenegativelycorrelated.Somecountries,suchasGreeceandItaly,experiencedrelativelylargeincreasesintheirsovereignCDSspreadswithoutanynoticeabledeclinesinthoseoftheirbanks.21- 100%ContributionBreedsActivityduringtheEconomicDespitetheseearlysigns,notallinvestorsweredifferentiatingamongsovereignsbasedonthehealthoftheirbalancesheets.InthefirstyearaftertheLehmanBrothersbankruptcy,somebankingsystems,mostnotablythoseintheeuroarea,startedrebalancingtheirforeignportfoliostowardsthepublicsectorindiscriminay.Inparticular,andincontrasttobankingsystemsintherestoftheworld,theysubstantiallyincreasedtheforeignportfolio’sshareofclaimsonbothrelativelysafesovereigns,suchastheUnitedStates,andrelativelyriskyones,fromcountriesthatwouldsubsequentlybeattheepicentreoftheEuropeansovereigndebtcrisis:Greece,Ireland,Italy,Portugaland22- 100%ContributionBreedsActivityduringtheEconomicAfterthe quarterof2009,whenthefirstserioussignsoffiscalproblemsintheeuroareabegantoemerge,investorsbecamemuchmoreawareofthepossiblechannelsforrisktransferbetweenbanksandsovereigns.BankandsovereignCDSspreadsbecamemuchmorepositivelycorrelatedwitheachother.Againstthisbackdrop,internationallyactivebanks,includingthoseheadquarteredintheeuroarea,startedtorebalancetheirforeignportfoliosawayfromtheriskiersovereignsintheeuroarea,suchasGreece,Ireland,Italy,PortugalandSpain,andtowardsperceivedsafersovereigns,suchastheUnitedStatesandGermany.23- 100%ContributionBreedsEconomicConditionofEuropeanFinancialSectorAIMS:DescribetheeconomicconditionoftheEuropeanfinancialsectorinThedirectexposuresofbankstosovereigndebtarestillafactorintheEuropeansovereigndebtcrisis.ThecombinedforeignclaimsofBISbanksonthepublicsectorsofGreece,Ireland,Italy,PortugalandSpainfellfromEUR568billionattheendofthethirdquarterof2009toEUR335billionattheendofthesecondquarterof2011–adeclineofroughly41%.Banksmayhavemarketthevalueofsomeoftheernmentdebtontheirtradingbooksdowntoitsmarketvalueorprovisionedagainstfuturelossesontheirernmentdebtholdingsinthebankingbook.Banksmayhaveletaportionoftheernmentdebtontheirbalancesheetsmaturewithoutreplenishingit.Banksmayhavesoldsomeoftheirforeignernmentdebtsecurities,includingtothehomebanksofthesovereignandtotheECB.24- 100%ContributionBreedsEconomicConditionofEuropeanFinancialSectorDespitetheoveralldeclineinexposurestotheriskiesteuroareasovereignsobservedin2010-2011,banksstillownsizeableamountsofdomesticandforeignsovereigndebt.AsofJune2011,BISreportingbanks’exposurestoforeignpublicsectorsrangedfromcloseto80%ofTier1capitalforItalian,USandGermanbankstoover240%forSwiss,BelgianandCanadianbanks.25- 100%ContributionBreedsEconomicConditionofEuropeanFinancialSectorFurthermore,theforeignpublicsectorportfoliosofeuroareabanksremaingearedtowardstheriskiereuroareasovereigns.Relativetotheaveragesharesofeuroareaernmentdebtoutstanding,Euroareabankscontinuetounderweightthesafestsovereigns(i.e.GermanyandFrance)andoverweightsomeoftheriskierones(Belgium,Portugal,Italy,Spain).Nevertheless,theirbiastowardsoverweightingthedebtofriskiesteuroareapublicsectorshasdecreasesincemid-2008,whenItaly,Greece,Portugaland,toasomewhatsmallerextent,Spainloomedlarger.Europeanbankscontinuetoholdlargeamountsofdebtissuedbytheirownsovereigns.ThedomesticsovereigndebtholdingsofmanyEuropeanbankingsystemsexceeded100%oftheirTier1capitalasoftheendof2010.26- 100%ContributionBreeds AIMS:Exinsomepossible implementationthatcanhelpmitigatethespreadoffuturecrises.FiscalFiscalsoundnessofsovereignsisoneofthemostimportantprerequisitesforthesmoothandefficientfunctioningoftheinternationalfinancialSolidglobalfinancialsystemiscrucialforthefiscalhealthofsovereignsaroundtheworld.Weaknessesineitherofthetwosectorscanspreadtotheotherviaanumberofchannels.Withtheglobalfinancialsystemingmoreandmoreintegrated,suchachainreactioncanquicklyextendacrossnationalInordertopreventthisfromhappening,appropriatebuffersshouldbebuiltupingoodtimes–fiscalbufferswouldensurethattherisk-statusofthesovereignismaintained,whilecapitalandliquiditybufferswouldunderpinthesoundnessofthefinancialsystem.27- 100%ContributionBreeds Themainconclusionthatmakersshoulddrawfromthecrisisisthattheinterconnectednessoftheglobalfinancialsystemmakestheprudentialapproachto making,asitrelatestobothernmentfinancesandfinancialstability.Whenmakingtheirdecisions,theyshouldalsotakethesespillovereffectsintoconsideration.Themosturgenttaskfacing makerstodayisrestoringtherisk-statusofsovereigns,togetherwiththeconfidenceitengenders.BothBaselIIandBaselIIIrequirebankstoyzeandtodiscriminateamongsovereignrisks.Theinternalratings-basedapproachforcalculatingtheamountofcapitaltobeheldagainstcreditriskdoesnotimplyazeroriskweight.Instead,itcallsforagranularapproachthatallowsforameaningfuldifferentiationofsovereignrisk.Moreover,the3%leverageratioinBaselIIIineffectsetsaflooronthecapitalbackingofsovereignholdings.Thatsaid,assessingsovereignriskandthecapitalthatneedstobeheldagainstitisnoteasy,giventhelackofdefaultsamongthebettersovereigncredits.28- 100%ContributionBreeds Inthelongrun,akeyrolefortheernmentbudgetistoprovideacountercyclical instrument,beitthroughautomaticstabilizersordiscretionaryactions,suchasprovidingsupportforthefinancialsystem.Thisrequiresittobuildupfinancialbuffersingoodtimes.Inthesortrun,ernmentsneedtoaddressthehighlevels

participantsthatadjustmentwilloccurandthatsustainabilitywillfollow.29- 100%ContributionBreedsCurrentIssuesinFinancial OfRunesandSagas: sonLiquidityStressTestingUsinganIcelandExampleTailsoftheTheDogandtheChallengestoBusinessintheTwenty-FirstExchange-TradedFunds,MarketStructureandtheFlash30- 100%ContributionBreeds全称：冰 首都：雷克雅未克主要城市：阿克雷里，哈夫纳夫约杜语言：冰岛 货币：冰岛克人口数量：313376人(2007年人口密度：2.98人/平方公主 路德面积：10.3万平方公GDP总计：194 (2007年人均国内生产总 世界第人均发展指 世界第境内冰山、活火山林立，被称为“冰火之国31- 100%ContributionBreeds行业放松，10多年过去后冰岛的金融业超常发展。冰岛为了从世界攫取的，拼命发展金融银行业，并将投资也过多集中于这块高风险 冰岛是一个只有32万人口的岛国，除渔业、铝矿和旅游等有限资源外,几 风险投资,最近几年冰岛的高速发展就是金融业拉动的。这种发展模式存机就会引起金融系统的,进而金融。32- 100%ContributionBreeds 年月日,受次贷的影响，冰岛盖尔.希尔马.哈尔德发表电视:“同胞们,这是一个真真切切的。在最糟的情况下,冰岛的国民经济将和银行一同卷进漩涡,结果会是国家的”。冰岛,这个仅有32万人口,人均GDP却是世界第五的北欧小国,曾经的“世界最富裕的国 次贷发生后，冰岛三大银行并不是次级债的直接受害者他们本来已经躲过了贝尔斯登与雷曼兄弟的方式,这几家银行都发布了良好 徒”。不断借钱,放贷,然后再借 钱。但是,当 ,所有国家的金融机构都在考虑自己的生存问题,现金成为最宝贵的资源,冰岛银行赖以生存的短期 33- 100%ContributionBreedsTypicalSolvencyandLiquidityConceptLiquidityLackofliquiditycancausethefailureofaninstitution,evenwhenitistechnicallysolvent(i.e.,whenthevalueofitsassetsexceedsthatofliabilities).Commercialbankshaveaninherentliquidityimbalancebetweentheirassets(long-termloans)andtheirliabilities(retaildepositsandcapitalmarketdebt).Acrisisofconfidencemightleadtodepositorsdemandingtheirmoneyrightaway.(Depositrun)Fundingliquidityriskistheriskthatthefirmwillnotbeabletomeetefficientlybothexpectedandunexpectedcurrentandfuturecashflowandcollalneedswithoutaffectingeitherdailyoperationsorthefinancialconditionofthefirm.34- 100%ContributionBreedsTypicalSolvencyandLiquidityAIMS:DescribethetypicalsolvencyandliquidityscenariospresentatIcelandicbanksintheperiodsleadinguptotheIcelandicdebtcrisis.ThesizeofIceland’sbankingsectorwasaboutninetimesthecountry’sgrossdomesticproduct(GDP)attheendof2007,fundedlargelybyexternaldebt.Thebankshadreliedheavilyonmarketfundingfortheiroperations,andhadpreviouslybeencriticizedforalackofdiversificationintheirfundingprofile,inparticular,forthelowproportionofdepositsintheirfunding.Attheendof2007,some40percentoftheirfundingwasintheformofdeposits,upfrom28percentin2006,withmorethantwo-thirdssourcedfromnon-residents.35- 100%ContributionBreedsEventsoftheIcelandicDebtAIMS:SummarizetheeventsoftheIcelandicdebt2008.9.29,thePrimeMinisterannouncedthatanagreementhadbeenreachedbetweentheernmentandthelargestownersofGlitnir,thecountry’sthirdlargestbank,wherebytheernmentwouldcontributenewsharecapitalandtakeupa75percentstakeinthebank.2008.10.6,Iceland’sparliament,theAlthing,passedemergencylegislationenablingtheernmenttointerveneextensivelyinIceland’sfinancialsystem.2008.10.7,theFMEputLandsbankiintoreceivership;GlitnirandKaupthingfollowedonOctober8and9,respectively.Bythatstage,thethreebankscombinedhadamasseddebtofanestimated$61billion–about12timesthesizeofIceland’seconomy–andwereunabletosecureshort-termfundingtocontinueservicingtheirobligations.36- 100%ContributionBreedsEventsoftheIcelandicDebtThenadirofthecrisis,duringthefirstweekofOctober2008,wasmarkedbysevereshockstoIceland’sfinancialsystem.ThevalueoftheKrónaplummeted,andonOctober7,2008theSeðlabankiattemptedtopegtheKróna–tradingat172againsttheeuroatthetime–at131againsttheeuro;thepegwasabandonedthenextday.Tradeinthecurrencywassubsequentlysuspended,andpaymentsinandoutofIcelandeffectivelycametoastandstill.AnumberofprivateinterbankcreditfacilitiestoIcelandicbankswereshutdown,andbankswereunablefinancetheirdebtsthroughshort-termborrowing.Inanattempttoalleviatedepositorconcerns,theernmentofferedanunlimitedguaranteetoalldepositorsinbanksandbranchesinIceland.Bythatstage,however,depositrunsonoverseasbranchesofIcelandicbankshadalready37- 100%ContributionBreedsStressTestMethodsoftheFMEandConceptStressAimsatidentifyingsituationsthatcouldcreateextraordinarylossesbut usiblelosses.38- 100%ContributionBreedsStressTestMethodsoftheFMEandConceptEconomicEconomiccapital(EC)isdefinedasthelargestacceptablelossafirmiswillingtosufferoveraspecifiedperiodandataspecifiedconfidencelevel.Inotherwords,ECisaVAR-type to

aversionoftheboardofdirectorsandseniorEconomiccapitalisdistinctfromreserves.Firmssetasidereservesinpreparationforexpectedlosses.Incontrast,capitalisneededtoprovideacushionagainstunexpected39- 100%ContributionBreedsStressTestMethodsoftheFMEandAIMS:ContrastthestresstestmethodsoftheFinancialSupervisoryAuthority(FME)andSeðlabanki.StressTestMethodsoftheTheFMEhadperformedstresstestsofthecountry’sindividualbanksonaquarterlybasis.ThestressscenariosassumedbytheFMEappearedadequayconservative,incorporatingsignificantshockparametersandTheacknowledgedweaknessinthestresstestwasthatitdidnotincorporateanysecondroundeffectsfromshockstothebankingAnIMFreport mendedthattheFMEstresstestsbeexpandedtoevaluatesignificanttailevents.40- 100%ContributionBreedsStressTestMethodsoftheFMEandStressTestMethodsofTheSeðlabankihadestimatedbanks’resilienceagainstloanlossesandshockstotheirportfolios.Thedistributionofloanlosseswasdividedintoexpectedandunexpectedlosses–theformeriscoveredthroughprovisioning,whilethelatteriscoveredwithcapital,uptospecifiedtolerancelevels.Expectedandunexpectedlosseswereestimatedbasedonspecifiedshocks.41- 100%ContributionBreedsStressTestMethodsoftheFMEandIntheyearsleadinguptothecrisis,thestresstestsbytheFMEandtheSeðlabankihadfocusedlargelyonsolvencyrisk,andinhindsight,didnotadequaycapturethepotentialtail-risksofaliquidityshock.Theappropriatenessoftheweightingsappliedtotheindividualitemsmaybequestionableduringcrisisperiods.TheSeðlabankihadmoreformallyintroducedliquiditystresstestsofindividualbanksinlate-2007,however,itwastoolatetoadequayaddresstheproblemsatthebanksbythatstage.42- 100%ContributionBreedsWeightingsAssignedtoLiquidAssetsandBaselTier1Capital:Itincludesequitycapitalanddisclosedreserves,mostnotablyafter-taxretainedearnings.Suchcapitalisregardedasabufferofthehighestquality.Tier2Capital:Itincludescomponentsofthebalancesheetthatprovidessomeprotectionbutultima ymustberedeemedor amandatory

subordinatedtermdebt.Tier3capital:consistsofshort-termsubordinateddebtwithmaturityofatleasttwoyears.Thisisonlyeligibletocovermarket43- 100%ContributionBreedsWeightingsAssignedtoLiquidAssetsandConceptBaselBaselIIIintroducesadditionalrestrictionsonwhatcancountaspartoftier1capital.Someportionofequitythatrepresentsminorityinterestinoverseassubsidiarieshasbeendisallowed.Otherdisallowancesincludesomedeferredtaxassetsandmortgageservicingrights.BaselIIIabolishestier344- 100%ContributionBreedsWeightingsAssignedtoLiquidAssetsandAIMS:Exinhowtheweightingofshocksinshort-termassetsandshort-termliabilitiesareadjustedinstressteststhataccountforaliquidityInaseverefinancialcrisis,theprobabilityofextremeandunlikelyeventsoccurringincreases.InIceland’scase,itmeantthattheweightingsassignedtoliquidassetsandliabilitiespertheSeðlabanki’srequirementswereunlikelytohold.Duringperiodsofextremestress:WeightingsonliquidclaimsarelikelytoAnysharpdropinthemarketvalueofsecuritiesRepaymentofmaturingloansandadvancesmayfallsignificantlyasassetqualitydeteriorates.Weightingscedonliquidliabilitiesarelikelytorisesignificantlyasdepositorspullouttheirfundsandlendersrefusetorollovertheir45- 100%ContributionBreedsWeightingsAssignedtoLiquidAssetsandTheIMFWorkingPaperconductedthreetypesofstresstestofLandsbankiíslandshf:Onthesurfaceatleast,Landsbankiappearedtobeinasound,solventpositionattheendof2007.Thebank’scapitaladequacyratio(CAR)atthetimewas11.7percent,anditsTier1ratiowas10.1WhentheFME’sstresstestshockswereapplied,Landsbanki’sCARfellto10.5percent–stillabovetheregulatoryminimum8percent–anditsTier1ratiodeclinedto8.8percent.TheSeðlabanki’screditriskstresstestresultssuggestedthatindividualbanks,includingLandsbanki,couldwithstandanexpectedincreaseindefaultsin2008.46- 100%ContributionBreedsWeightingsAssignedtoLiquidAssetsandLandsbankialsoseemedtohavesufficientliquidassetstocoveritsshort-termliabilities.Attheendof2007,theparentbank’sliquidityratio,calculatedinaccordancewiththecentralbank’sruleNo.317/2006,was2.23–wellabovetherequiredratioofhigherthanoneforthenextthree-monthperiod–eventhoughthebank’snon-derivativecashflowobligationsasatend-2007revealedthatitsshort-termassetswerelowerthanitsshort-termliabilities.Undernormalconditions