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Stress testing at the Magyar Nemzeti Bank

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Author Info

  • Ádám Banai

    ()
    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Zsuzsanna Hosszú

    ()
    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Gyöngyi Körmendi

    ()
    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Sándor Sóvágó

    ()
    (Tinbergen Institute (MPhil student))

  • Róbert Szegedi

    ()
    (Magyar Nemzeti Bank (the central bank of Hungary))

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    Abstract

    Our study presents the top-down stress testing framework currently used by the Magyar Nemzeti Bank. We run separate solvency and liquidity stress tests to analyse the ability of the banking system to absorb shocks and we present their results in our Report on Financial Stability. In the former, we focus mostly on credit risk but also take into account losses due to market risks. Our study explains in detail the method we apply to quantify the impact of a negative two-year macroeconomic shock on the capital adequacy ratio. We explain the models we use for calculating profit before loan losses, PDs and LGD. We also demonstrate how we measure the impact of an intensive 30-day liquidity shock on the banking system. Finally, we use the stress test completed in the spring of 2013 to explain in detail how the results should be interpreted and what conclusions we can draw from them.

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    File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_muhelytanulmanyok/OP109_final.pdf
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    Bibliographic Info

    Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2014/109.

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    Length: 30 pages
    Date of creation: 2014
    Date of revision:
    Handle: RePEc:mnb:opaper:2014/109

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    Web page: http://www.mnb.hu/
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    Related research

    Keywords: stress test; liquidity risk; credit risk;

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