01908cas a2200253 a 4500 AALejournalIMF016011 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513519968 1018-5941 BD-DhAAL BD-DhAAL Jobst, Andreas A. Sovereign Risk in Macroprudential Solvency Stress Testing / Andreas A. Jobst, Hiroko Oura. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (59 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper explains the treatment of sovereign risk in macroprudential solvency stress testing, based on the experiences in the Financial Sector Assessment Program (FSAP). We discuss four essential steps in assessing the system-wide impact of sovereign risk: scope, loss estimation, shock calibration, and capital impact calculation. Most importantly, a market-consistent valuation approach lies at the heart of assessing the resilience of the financial sector in a tail risk scenario with sovereign distress. We present a flexible, closed-form approach to calibrating haircuts based on changes in expected sovereign defaults affecting bank solvency during adverse macroeconomic conditions. This paper demonstrates the effectiveness of using extreme value theory (EVT) in this context, with empirical examples from past FSAPs. Mode of access: Internet Oura, Hiroko. IMF Working Papers; Working Paper ; No. 2019/266 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/266/001.2019.issue-266-en.xml IMF e-Library