stress macroeconomic scenarios, the scenarios’ mapping to risk factors, computation of risk exposures to different risk factors, and estimation of outcome indicators to inform macroprudential policy makers. The main challenges going forward for the CSEEBs involve: (i) achieving improved data reliability, (ii) better consideration of quantitative microprudential indicators in macroprudential stress tests, (iii) the need for explicit incorporation of dynamics in stress test to include reaction functions of banks and macroprudential policy to changes in main macroprudential indicators, (iv) institutionalization of macroprudential policy responses to alarming stress-test results and enhanced use of the top-down and bottom-up stress test results in supervisory communication with commercial banks, and (v) closer cooperation of macroprudential and microprudential supervision and exchange of cross-border information for better supervision of international banking groups.

The reliability of data for stress testing still remains an important problem even for more advanced countries. Often, the consistency of various data sources is a challenge. The eventuality of adding other financial institutions than banks to the macroprudential stress testing exacerbates the data collection issues.<sup>33</sup> At the same time, there is a consensus on the need for IT specialists to be present among the on-site supervision staff in order to decrease the current overreliance on external audits of IT and information-management systems paid for by the banks themselves. The advantages and disadvantages of publication of bank-by-bank data is still an open issue for most CSEECBs in general, although many of them acknowledge that it could help improve market discipline, provided that the data to be published are normalized by supervisors across individual banks. This is because the current accounting and regulatory reporting systems leave a significant room for maneuver to the benefit of the banks.<sup>34</sup> Further, qualitative information from on-site supervision should be incorporated into macroprudential stress-testing approaches especially in regards to distinguishing the underwriting practices across banks and appropriately calculating the risk exposures for individual asset classes. This supports the general call for more on-site supervision and understanding of the businesses of the banks.

The need to carefully consider the dynamics in the stress testing models and the reaction functions of the banks (banking sector) and macroprudential policy and the second-round effects have been identified. One can draw the parallel to the development process concerning models for monetary policy analysis. However, one needs to acknowledge that the combination of income and balance sheet effects and significant non-linearities makes the stress-testing model development for financial stability oversight a greater challenge.

> 33 Some CSEECBs (i.e, the Czech Central Bank) already include other financial institutions than banks in their stress-testing exercises, though the results are presented separately for different financial sector segments.  The widening of the scope of the macroprudential stress testing to account for all financial entities also raises the challenges of aggregating the risks across financial sector segments.

> 34 However, data normalization at the local jurisdiction level does not guarantee an international comparison. More enhanced international reporting standards would make the bank-by-bank data disclosure more consistent.

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