SYSMO I : a systemic stress model for the colombian financial system

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Gamba-Santamaría, Santiago; Jaulín-Méndez, Oscar Fernando; Lizarazo-Cuellar, Angélica María; Mendoza-Gutiérrez, Juan Carlos; Morales-Acevedo, Paola; Osorio-Rodríguez, Daniel Esteban; Yanquen-Briñez, Eduardo
Banco de la República de Colombia
Pruebas psicológicas; Modelos VAR; Riesgo crediticio; Contagio financiero; Riesgo financiero; Modelos DSGE; G01 - Financial Crises; E58 - Central Banks and Their Policies; E44 - Financial Markets and the Macroeconomy; G20 - Financial Institutions and Services: General; G17 - Financial Forecasting and Simulation; Stress testing; DSGE models; VAR models; Credit risk; Market risk; Liquidity risk; Funding risk; Contagion risk; Crédito -- Métodos de simulación -- Colombia -- 2004-2018; Riesgo (Economía) -- Métodos de simulación -- Colombia -- 2004-2018; Contagio financiero -- Métodos de simulación -- Colombia -- 2004-2018; G20 - Instituciones y servicios financieros: Generalidades; E44 - Mercados financieros y macroeconomía; E58 - Bancos centrales y sus políticas; G01 - Crisis financiera; G17 - Previsiones financieras y simulación; Stress Testing, DSGE Models, VAR models, Credit Risk, Market Risk, Liquidity Risk, Funding Risk, Contagion Risk.
paper description
This paper presents the first version of SYSMO, the analytical framework employed by the Financial Stability Department at the Banco de la República (the Central Bank of Colombia) to perform its biannual, top-down, stress testing exercise. The framework comprises: (i) a module to produce internally consistent macroeconomic scenarios; (ii) a set of satellite risk models that capture the materialization of credit and market risks in times of stress, and (iii) a bank model that simulates the endogenous response of banks to an adverse scenario. The framework also incorporates endogenous contagion and funding risks, key regulatory constraints (solvency and liquidity), and the feedback effects between the endogenous response of banks and the macroeconomic scenario. The use of SYSMO is illustrated with the example of the stress testing exercise published in the Banco de la República’s Financial Stability Report of the second semester of 2017.