Stress Testing Credit Risk: A Survey of Authorities' Aproaches
This paper reviews the quantitative methods developed at selected authorities for stress testing credit risk, focusing in particular on the methods used to link macroeconomic drivers of stress with bank-specific measures of credit risk (macro stress test). Authorities with a mandate for financial stability are particularly interested in quantifying the macro-to-micro linkages and have developed specific modeling expertise in this field. Stress testing credit risk is also an essential element of the Basel II framework, and some stress-testing requirements of Basel II are formulated by making explicit reference to the economic cycle. The paper highlights recent developments in macro stress testing and details a number of methodological challenges that may be useful for supervisors in their review process of banks’ models as required by Basel II. It also contributes to the ongoing macroprudential research efforts to integrate macroeconomic oversight and prudential supervision, for early detection of key vulnerabilities and assessment of macro-financial linkages.
References listed on IDEAS
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.:
- Sebastiano Laviola & Juri Marcucci & Mario Quagliariello, 2006.
"Stress testing credit risk: experience from the italian FSAP,"
BNL Quarterly Review,
Banca Nazionale del Lavoro, vol. 59(238), pages 269-291.
- Sebastiano Laviola & Juri Marcucci & Mario Quagliariello, 2006. "Stress testing credit risk: experience from the italian FSAP," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 269-291.
- Marcucci, Juri & Quagliariello, Mario, 2008.
"Is bank portfolio riskiness procyclical: Evidence from Italy using a vector autoregression,"
Journal of International Financial Markets, Institutions and Money,
Elsevier, vol. 18(1), pages 46-63, February.
- Juri Marcucci & Mario Quagliariello, . "Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression," Discussion Papers 05/09, Department of Economics, University of York.
- Michael Boss & Gerald Krenn & Claus Puhr & Martin Summer, 2006. "Systemic Risk Monitor: A Model for Systemic Risk Analysis and Stress Testing of Banking Systems," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 11, pages 83-95.
- Miroslav Misina & David Tessier, 2008. "Non-Linearities, Model Uncertainty, and Macro Stress Testing," Working Papers 08-30, Bank of Canada.
- Til Schuermann & Björn-Jakob Treutler & Scott M. Weiner & M. Hashem Pesaran, 2003.
"Macroeconomic Dynamics and Credit Risk: A Global Perspective,"
CESifo Working Paper Series
995, CESifo Group Munich.
- Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
- M. Hashem Pesaran & Til Schuermann & Björn-Jakob Treutler & Scott M. Weiner & April, . "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Center for Financial Institutions Working Papers 03-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Pesaran, M.H. & Schuermann, T. & Treutler, B-J. & Weiner, S.M., 2003. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Cambridge Working Papers in Economics 0330, Faculty of Economics, University of Cambridge.
- Maria Soledad Martinez Peria & Giovanni Majnoni & Matthew T. Jones & Winfrid Blaschke, 2001. "Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 01/88, International Monetary Fund.
- Jan Willem van den End & Marco Hoeberichts & Mostafa Tabbae, 2006. "Modelling Scenario Analysis and Macro Stress-testing," DNB Working Papers 119, Netherlands Central Bank, Research Department.
- Paul Louis Ceriel Hilbers & Matthew T. Jones & Graham L. Slack, 2004. "Stress Testing Financial Systems: What to Do When the Governor Calls," IMF Working Papers 04/127, International Monetary Fund.
- Jorge A. Chan-Lau, 2006. "Fundamentals-Based Estimation of Default Probabilities: A Survey," IMF Working Papers 06/149, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2009:q:3:a:1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa)
If references are entirely missing, you can add them using this form.