This paper introduces the Systemic Risk Modelling System (SRMS), a new macroprudential stress testing model for the Lithuanian banking sector. The SRMS addresses the limitations of traditional static models by incorporating dynamic balance sheet assumptions and capturing second-round effects, providing a more comprehensive assessment of systemic risks. The model’s applications extend beyond stress testing, including macroprudential policy stance assessment, capital-at-risk analysis, and macroprudential policy impact evaluation. The SRMS model enhances the understanding of systemic risks within the Lithuanian banking sector and offers a potential benchmark for other national central banks seeking to strengthen their financial stability frameworks.
Keywords: macroprudential stress testing, macroprudential policy, feedback loop, secondround effects.
JEL codes: E37, E58, G21, G28
macroprudential policy, macroprudential stress testing, feedback loop, secondround effects