Upon completion of this program, participants will be able to:

• Define financial stability and identify key indicators and metrics for systemic risk.
• Conduct a macro-level assessment of vulnerabilities in the banking, household, and corporate sectors.
• Design severe-but-plausible adverse macroeconomic and market stress scenarios.
• Apply the process of stress testing across credit, market, and liquidity risk categories.
• Model the propagation of shocks and contagion effects across the financial network.
• Interpret and utilize stress test results to inform macroprudential and supervisory policy decisions.
• Evaluate the role of non-bank financial institutions (NBFIs) in systemic risk.
• Understand and implement the key recommendations of the **Financial Stability Board (FSB)** frameworks.

• Central Bank Financial Stability and Stress Testing Analysts
• Bank Supervisors and Regulatory Authority Staff
• Commercial Bank Risk Management and Capital Planning Teams
• Quantitative Risk Analysts and Model Developers
• Government Treasury and Debt Management Officials
• Internal Auditors specializing in Systemic Risk

Macroprudential stress test simulation (Excel/R/Python), Scenario design workshops, Case studies of past systemic crises, Group project on FSR section drafting, Network analysis exercises, Policy formulation role-playing.

Unit 1: Foundations of Financial Stability

• Defining systemic risk and its sources (e.g., interconnectedness, procyclicality, leverage).
• Key indicators of vulnerability across the credit, housing, and corporate sectors.
• The role of global financial cycles and capital flows in domestic stability.
• Interpreting the main components of a standard Financial Stability Report (FSR).

• Developing and calibrating macro-level and market-based EWI for financial distress.
• Utilizing high-frequency data (e.g., payment flows, volatility indices) in EWI.
• The trade-off between EWI sensitivity and specificity (false positives/negatives).
• Integration of EWI output into decision-making and escalation protocols.

Unit 2: Stress Testing Methodology

• Principles for designing severe-but-plausible **adverse scenarios** (e.g., deep recession, housing crash).
• Top-down vs. bottom-up stress testing methodologies.
• Techniques for mapping macroeconomic variables to bank-specific risk factors.
• The role of sensitivity analysis and reverse stress testing.

• Modeling credit risk losses (PD, LGD) under stressed scenarios.
• Forecasting trading book and market risk losses (VaR under stress).
• Modeling liquidity losses and funding risks (e.g., deposit run-off).
• The process of aggregating losses and estimating overall capital depletion.

Unit 3: Contagion and System-Wide Analysis

• Applying **Network Analysis (Graph Theory)** to model interbank exposures.
• Simulation models for default and liquidity shock propagation (e.g., Debt Rank).
• Identifying Systemically Important Financial Institutions (SIFIs) through network metrics.
• Modeling the impact of fire sales and common exposure shock.

• Assessing systemic risk transmission from the shadow banking sector (e.g., money market funds, hedge funds).
• Regulatory gaps and monitoring challenges in the NBFI space.
• Modeling the interplay between banks and non-banks under stress.
• Policy tools for mitigating NBFI-related systemic risk.

Unit 4: Policy Implementation and Governance

• Translating stress test results into macroprudential tool calibration (e.g., capital buffers, LTV limits).
• Using stress tests to inform bank resolution and recovery planning.
• Communication strategies for stress test results to manage market perception.
• Cross-border and international coordination in stress testing.