Finance and Economics Discussion Series (FEDS)
March 2022
Updated Primer on the Forward-Looking Analysis of Risk Events (FLARE) Model: A Top-Down Stress Test Model
Sergio Correia, Matthew P. Seay, and Cindy M. Vojtech
Abstract:
While the bank stress test exercise conducted by the Federal Reserve System is a critical policy tool for assessing the health of large banks, the Federal Reserve has worked to build additional tools to assess the resiliency of the banking system as a whole and to address macroprudential goals. The Forward-Looking Analysis of Risk Events (FLARE) model is one such tool. This technical note describes the FLARE model, which is a top-down model that helps assess how well the banking system is positioned to weather exogenous macroeconomic shocks. FLARE estimates banking system capital under varying macroeconomic scenarios, time horizons, and other systemic shocks.
DOI: https://doi.org/10.17016/FEDS.2022.009
PDF: Full Paper
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