---
title: "Exploring vulnerabilities thr… | Insights — Lyoen & Partners"
url: https://lyoenandpartners.com/insights/exploring-vulnerabilities-through-reverse-stress-testing
description: "Financial Stability Report November 2024 special topic article by Jonathon Adams-Kane, published 4 November 2024. Thirteen named banks participated agains…"
lang: en-US
---

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Monday, November 4, 2024risk

# Exploring vulnerabilities through reverse stress testing

Financial Stability Report November 2024 special topic article by Jonathon Adams-Kane, published 4 November 2024. Thirteen named banks participated against only the four largest in the 2016 exercise, each asked to model a plausible scenario that would breach regulatory minimum capital ratios within three years. Banks found that a severe scenario required either a large shock with adverse knock-on effects or a combination of shocks, geopolitical events were the primary cause of recession in 7 of the 13 scenarios, GDP declines ranged from 3 to 24 per cent, peak unemployment from 8 to 18 per cent and residential property falls from 30 to 55 per cent, with a three-year cumulative loss rate on impaired loans of 4.7 per cent on average; the regulator records that banks engaged broadly across the organisation including their board risk committees and that board members at some banks personally identified or reviewed the risks.

Sources

Reserve Bank of New Zealand Te Putea Matua (https://www.rbnz.govt.nz/hub/publications/financial-stability-report/2024/nov-2024/exploring-vulnerabilities-through-reverse-stress-testing)

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