How Central Banks Stress Test Their Own Balance Sheets

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · May 30, 2026 · 11m · transcript

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…