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A value-at-risk approach to commercial real estate portfolio stress testing at US community banks

Author

Listed:
  • Hall, John
  • Kern, David
  • Yeager, Timothy
  • King, Tom
  • Lee, Kevin

Abstract

The December 2006 federal regulatory guidance on commercial real estate (CRE) requires banks with significant concentrations in CRE lending to employ appropriate risk-management techniques to measure and manage the risk. Using vector autoregression techniques on historical CRE foreclosure rates, the authors develop a value-at-risk CRE portfolio stress-test methodology. They document the build-up of CRE concentrations in bank loan portfolios and explain how banks can use a spreadsheet-based simulation methodology to measure their portfolio risk across the entire loan portfolio.

Suggested Citation

  • Hall, John & Kern, David & Yeager, Timothy & King, Tom & Lee, Kevin, 2011. "A value-at-risk approach to commercial real estate portfolio stress testing at US community banks," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 5(1), pages 60-75, December.
    • Handle: RePEc:aza:rmfi00:y:2011:v:5:i:1:p:60-75
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    More about this item

    Keywords

    commercial real estate; community banks; portfolio stress testing; vector autoregression; value at risk;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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