Financial regulators should implement “two-stage” stress tests, to enhance their macro-prudential effectiveness, said Donald Kohn, a member of the Bank of England’s financial policy committee.
“Stress tests are sometimes characterised as micro-prudential tools with a macroprudential overlay,” former Federal Reserve vice-chairman Kohn said in a speech delivered on February 5.
He argued the macro-prudential aspect of the test could be bolstered to help central banks model feedback loops more
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