Macroprudential stress testing of systemic risk in EU between 2008 - 2022: Agent-based approach

In response to the global financial crisis of 2007-2008, the world policy makers have initiated a comprehensive reform programme aimed at increasing the banking sector’s resilience against systemic shocks. Revision of multiple regulatory constraints focused on solvency and liquidity risk has been extended by a variety of regulatory and accounting treatment of other risks and areas of banking activity. Within the regulatory framework have soon thereafter emerged two distinct policy areas. Traditional microprudential policy focused on health and stability of individual institutions was complemented by macroprudential policy aimed at system-wide perspective of financial stability. The two policies combined were to tackle the “fallacy of composition” or a belief that stability of individual institutions condition the soundness of the financial system. Current macroprudential toolkit of regulatory policy ranges from sectoral capital buffers and constraints to product- or portfolio-specific constraints. Macroprudential stress testing is distinct from the other policies, for it serves both as policy measure as well as an instrument of assessment and evaluation. Presented dissertation reviews current economic literature on macroprudential stress testing, systemic risk and models used for measuring and modelling it. Further a self-standing agent-based (network) model of bank behavior is developed and analyses a set of bank interactions and regulatory policies and their impact on materialization of systemic risk is performed.