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Stress Testing the Enterprise Sector's Bank Debt: A Micro Approach

  • Eivind Bernhardsen

    (Financial Supervisory Authority of Norway)

  • Bjorne Dyre Syversten

    (Norges Bank)

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    This paper describes Norges Bank’s micro stress-testing framework for assessing the Norwegian banking sector’s losses on loans to the nonfinancial enterprise sector. Using projected macro variables and a stock-flow approach, annual financial statements of every firm in Norway are projected five years ahead. The loan loss potential is then assessed using a creditscoring model. We present a backtest of projections, taking the history of macro variables as given. Our results are fairly good using a relatively simple setup, and we conclude that stockflow projections of financial statements can be useful for stress testing banks’ loan portfolios.

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    Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

    Volume (Year): 5 (2009)
    Issue (Month): 3 (September)
    Pages: 111-138

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    Handle: RePEc:ijc:ijcjou:y:2009:q:3:a:4
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    1. Arthur Lewbel, 2000. "Identification of the Binary Choice Model with Misclassification," Boston College Working Papers in Economics 457, Boston College Department of Economics.
    2. Hausman, J. A. & Abrevaya, Jason & Scott-Morton, F. M., 1998. "Misclassification of the dependent variable in a discrete-response setting," Journal of Econometrics, Elsevier, vol. 87(2), pages 239-269, September.
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