What do stress tests test? Experimentation, demonstration, and the sociotechnical performance of regulatory science

Abstract

After their successful introduction during the 2007-2009 financial crisis, central bank stress tests were adopted as a fixture of international banking supervision. However, in recent years a new normal has emerged where banks are expected to pass the tests, raising questions about the tests' usefulness and legitimacy. Combining a dramaturgical interpretation of regulatory science with the idea of performativity in the sociology of finance, this article understands stress tests as a sociotechnical Goffmanian performance. With a focus on the Bank of England's program, the paper argues that the Bank's decision to make their tests "predictable" is an attempt to shore up central bank legitimacy by constraining regulatory discretion. This is accomplished through the use of calculative and procedural stage management techniques which allow the Bank to control the contingency of the testing process while demonstrating its objectivity. Nevertheless, the conclusion suggests that in the context of low levels of trust in central banks, routine declarations of "all clear" may undermine public confidence in the tests' credibility and necessity. The study draws on 20 interviews with high-level regulators, financial practitioners and other stakeholders in the Bank of England's stress tests.

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