The model uses cutting edge techniques in analysing the network of the Indian financial system and identifying, on a real time basis, buildup of excesses and risk concentrations, if any. Advanced stress testing techniques are being used to assess the resilience of the financial sector.
A series of Banking Stability Measures (in the form of Banking System’s Portfolio Multivariate Density), including a “Toxicity Index”, a “Vulnerability Index” and “Cascade” effects have been developed for the purpose of assessing the systemic importance of individual banks5. Also, the impact of macroeconomic shocks on the stability of the banking system is being assessed based on the Vector Autoregression (VAR) approach.