Do central bank stress tests encompass the Covid crisis?
In Donald Rumsfeld’s famous taxonomy, the Covid crisis is best thought of as a “known unknown” for financial stability. While the risks associated with a pandemic were at the top of governmental risk registers, there had not been a recent regulatory stress test to gauge how the financial system might fare in such an event. Despite this, the Covid shock is manifesting itself in steep falls in activity globally and in large drops in various asset prices – scenarios that have been front-and-centre in central banks’ stress testing programmes since the last crisis.
Do central bank stress tests encompass the Covid crisis?