How Central Banks Stress Test Their Own Balance Sheets

When commercial banks undergo stress tests, everyone watches. But central banks also run stress tests on themselves—examining what happens to their own balance sheets if interest rates spike, if a currency peg comes under attack, or if a major counterparty defaults. Lucas and Luna explore how the Federal Reserve, the ECB, and the Bank of Japan model these scenarios, what they've learned from recent episodes like the 2023 banking turmoil, and why a central bank's credibility depends on knowing its own vulnerabilities. The episode zeroes in on the Fed's 2024 internal stress test framework and the surprising finding that a rapid unwind of the overnight reverse repo facility could create liquidity mismatches. If walking through the economy with us has made something click, you can support the ad-free choice at buy me a coffee dot com slash fexingo. #CentralBankStressTests #BalanceSheetRisk #FederalReserve #ECB #BankOfJapan #LiquidityRisk #InterestRateRisk #ReverseRepo #QuantitativeTightening #BankingTurmoil2023 #FinancialStability #Economics #MonetaryPolicy #FexingoBusiness #BusinessPodcast #StressTestFrameworks #CentralBankVulnerabilities #Macroprudential Keep every episode free: buymeacoffee.com/fexingo