Stress testing, at its most general level, is an investigation of the performance of an entity under abnormal operating conditions. The authors focus on one set of entities--the Canadian banking sector--and investigate losses in the loans portfolio of this sector as a function of changing circumstances in the different industries in which these loans reside. These circumstances are characterized by means of one summary measure--sectoral probabilities of default--and this measure is modelled as a function of macroeconomic variables. Using this model, the authors assess the interrelationship between the macroeconomic environment and sectoral defaults, and perform a series of stress tests under different scenarios that are thought to be most pertinent to Canada. The tools underlying the authors' analysis are general and can be applied to other countries, as well as to other macroeconomic scenarios.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number
06-47.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: