Stress testing banks' profitability: the case of French banks
AbstractWe build a stress testing framework to evaluate the sensitivity of banks’ profitability to plausible but severe adverse macroeconomic shocks. Specifically, we test the resilience of French banks using supervisory data over the period 1993-2009. First, we identify the macroeconomic and financial variables (GDP growth, interest rate maturity spread, stock market’s volatility) and bank-specific variables (size, capital ratio, ratio of non interest income to assets) that significantly affect French banks’ profitability. Second, our macroeconomic stress testing exercises based on a simulation of macroeconomic variables show that French banks’ profitability is resilient to major adverse macroeconomic scenarios. Specifically, our findings highlight that even severe recessions would leave the French banking system profitable.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 306.
Length: 52 pages
Date of creation: 2010
Date of revision:
bank profitability; dynamic panel estimation; stress test.;
Other versions of this item:
- Coffinet, Jerome & Lin, Surong, 2013. "Stress-Testing Banks’ Profitability: The Case of French Banks," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(2), pages 67-80.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-03 (All new papers)
- NEP-BAN-2011-01-03 (Banking)
- NEP-CBA-2011-01-03 (Central Banking)
- NEP-RMG-2011-01-03 (Risk Management)
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.:
- Carbo Valverde, Santiago & Rodriguez Fernandez, Francisco, 2007. "The determinants of bank margins in European banking," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2043-2063, July.
- Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
- Francisco Vazquez & Benjamin M. Tabak & Marcos Souto, 2010.
"A Macro Stress Test Model of Credit Risk for the Brazilian Banking Sector,"
Working Papers Series
226, Central Bank of Brazil, Research Department.
- Vazquez, Francisco & Tabak, Benjamin M. & Souto, Marcos, 2012. "A macro stress test model of credit risk for the Brazilian banking sector," Journal of Financial Stability, Elsevier, vol. 8(2), pages 69-83.
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