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Internal rating stress testing methods and implications

Author

Listed:
  • Pasquale Costa

    (Cariparma - Crédit Agricole)

  • Fabio Salis

    (Cariparma - Crédit Agricole)

Abstract

The internal validation function of Cariparma-Crédit Agricole has developed a stress testing framework on Individuals, Solo Traders and Sme ratings, with the aim of testing the performance of internal ratings in the current economic downturn. After having verified – through a backtesting analysis – the forecasting performance of the models, we have investigated their possible uses both for regulatory (authorization request to Bank of Italy for the validation of internal rating system, development of a new calibration testing tool to utilize during downturn phases) and management purposes (creation of capital buffers and assessment of economic capital in different Pillar 2 scenarios)

Suggested Citation

  • Pasquale Costa & Fabio Salis, 2011. "Internal rating stress testing methods and implications," BANCARIA, Bancaria Editrice, vol. 4, pages 64-76, April.
    • Handle: RePEc:ban:bancar:v:04:y:2011:m:april:p:64-76
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    File URL: http://www.bancariaeditrice.it/prodotti/vedi/prodotto/id/2474/bancaria-n-4-2011
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    More about this item

    Keywords

    stress test; probabilità di default; modelli di rating interno;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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