Banks asses what stressors could destroy capital buffers
RBNZ calls this a “reverse stress test,” rather than have all banks test whether they could withstand a particular set of economic impacts.
The banks chose geopolitical risks as the most common cause of a recession in New Zealand, unsurprising since the current recession was caused by governments' and central banks' overreaction to the covid pandemic and the previous recession was sparked by the collapse of most finance companies exacerbated by the global financial crisis.
“The impacts on the capital results were generally more severe than those from our traditional stress tests, apart from our 2020 covid-19 very severe scenario,” RBNZ said on Monday in a second pre-view of Tuesday's financial stability report.
“Concern about geopolitical tension has been increasing recently,” said Kerry Watt, RBNZ's director of financial stability assessment and strategy.
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