* * *  Introduction Robert F. Kennedy once said “like it or not we live in interesting times”. 1 As central bankers, supervisors, or market participants alike, those working in financial markets have certainly come through some extraordinarily interesting times in recent years. For central banks, risk management is at the intersection of both central banking and supervisory structures, and the financial market.
When drawing conclusions based on test results, statisticians and scientists often factor in the possibility of erroneous results, or “false negatives” and “false positives.” Some economists have extended this concept to assessing the effectiveness of regulation. Imagine that you visit your doctor for an annual checkup and have your cholesterol level tested.