Abstract for: Dynamically Stress Testing Financial Systems
Turmoil in financial markets revealed a need to advance analytical and monitoring frameworks at central and national banks, specifically in the area of systemic risk. System Dynamics offers an innovative approach to assessing financial sector performance and inform policy reform for global regulators by employing tools to diagnose the strength of the finance and banking system. Banking entities can examine the intersections and interactions between the banking system value chains, analyze the various economic subsystems that affect overall banking system stability, and model the complex system relationships through causal feedback loops and system flows. As a result our system dynamic models assist banks in planning for emergency liquidity assistance by determining when the risk occurs and quantifying losses.