Stress tests should cover risks from low interest rates, possible rate surges, global authority says

9 July 2018 9:53pm
National regulators should adapt stress tests for banks, insurers and pension funds to cover financial stability risks posed by prolonged low interest rates and the possibility of sudden “snapback” rate increases, a global authority said.

The historically low rates during the decade since the Great Recession present profitability challenges for some banks, and even greater risks for insurers and private pension funds, that could reverberate throughout the economy, a Bank for International Settlements panel's report said.

The working group, headed by a European Central Bank official and a US Federal Reserve official, said that it “supports enhanced monitoring of financial institutions’ exposure to low-for-long and snapback risks, especially through stress tests that can capture both gradual buildups and sudden reversals.”