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Bridging the banking sector with the real economy: a financial stability perspective

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  • Costeiu, Adrian
  • Neagu, Florian

Abstract

This paper builds a macro-prudential tool designed to assess whether the banking sector is adequately prepared to orderly withstand losses resulting from normal or stressed macroeconomic and microeconomic scenarios. The link between the banking sector and the real sector is established via the corporate sector channel. The macro-prudential tool consists of a two-step approach. In the first step, we build a model for the probability of default (PD) in the corporate sector, so as to quantify oneyear ahead developments in the quality of banks' corporate loans. The framework is established using micro data, with a bottom-up approach. The second step consists of bridging the PD model with a macroeconomic module in order to capture the feedback effects from the macroeconomic stance into the banking sector, via the corporate sector channel. The macro-prudential tool is tested on the Romanian economy. JEL Classification: G32, G21, E17

Suggested Citation

  • Costeiu, Adrian & Neagu, Florian, 2013. "Bridging the banking sector with the real economy: a financial stability perspective," Working Paper Series 1592, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20131592
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Neagu, Florian & Mihai, Irina, 2013. "Sudden stop of capital flows and the consequences for the banking sector and the real economy," Working Paper Series 1591, European Central Bank.
    2. Samitas, Aristeidis & Polyzos, Stathis & Siriopoulos, Costas, 2018. "Brexit and financial stability: An agent-based simulation," Economic Modelling, Elsevier, vol. 69(C), pages 181-192.
    3. Roxana Daliana Schiop & Mihaiela Joly Mircea, 2023. "Banking institutions and aggregated indicators for financial stability on the Romanian banking market," Journal of Financial Studies, Institute of Financial Studies, vol. 8(Special-J), pages 181-192, June.
    4. Brezigar-Masten, Arjana & Masten, Igor & Volk, Matjaž, 2021. "Modelin-g credit risk with a Tobit model of days past due," Journal of Banking & Finance, Elsevier, vol. 122(C).

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    More about this item

    Keywords

    Financial Stability; macro-prudential analysis; probability of default; ROC;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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