A third challenge is the need to reduce reliance on models. Recently conducted stress-tests, a core macro-prudential tool, followed a “single-model-fits-all” methodology, which left very little room for idiosyncratic and specific national characteristics. Moreover, according to some analysts, there is a risk that stress tests are becoming less effective as a tool.
Instead, they may increasingly be seen as being conducted simply to calm financial markets. Ideally, stress tests should be implemented in benign times in accordance with an old wisdom attributed to John F. Kennedy, that “the time to repair the roof is when the sun is shining”.