Stress testing credit risk: experience from the italian FSAP
In this paper we describe the methodologies that can be used for stress testing credit risk providing some applications to the Italian banking system.Within the FSAP for Italy, stress tests examined the impact of a variety of shocks on the nine major Italian banking groups. The tests were performed using both top-down and bottom-up approaches, which provided comparable results. For the sensitivity analysis, the size of the shocks to assess market risk, sovereign risk, interest rate rÌsk in the banking book and liquidity risk was in line with those ap-plied in other FSAPs for euro area countries, while the credit risk shock exceeded the largest historical shock. In addition, the impact of various adverse macroeconomic scenarios has been assessed. Specifical-ly, an adverse macro scenario in which oil prices reach USD 85-90 per barrel causing a global slow down and global equity prices decrease by 30% has the largest impact. Overall, stress test results suggest that the Italian banking sector is resilient to shocks. Profits appear in most cas-es sufficient to cover 10sses arising from the shocks calibrated. Existing capitaI buffers remain comfortably above the minimum regulatory sol-vency ratios. The implementation of macroeconomic stress-testing pro-grammes such as those underlying the FSAPs has advanced the devel-opment of internally consistent stress testing procedures. However, the state of the art is still evolving and further work in this field will allow relaxing less realistic assumptions, further improving the methodologies and making results more reliable.
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.:
- Mario Quagliariello, "undated". "Banks' Performance over the Business Cycle: A Panel Analysis on Italian Intermediaries," Discussion Papers 04/17, Department of Economics, University of York.
- Luca Casolaro & Leonardo Gambacorta, 2004. "Un modello dei conti economici per il sistema bancario italiano," Temi di discussione (Economic working papers) 519, Bank of Italy, Economic Research and International Relations Area.
- 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.
- Fabrizio Fabi & Sebastiano Laviola & Paolo Marullo Reedtz, 2004. "The treatment of SMEs loans in the New Basel Capital Accord: some evaluations," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 57(228), pages 29-70.
- De Bandt, Olivier & Hartmann, Philipp, 2000.
"Systemic risk: A survey,"
Working Paper Series
0035, European Central Bank.
- de Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic Risk: A Survey," CEPR Discussion Papers 2634, C.E.P.R. Discussion Papers.
- 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.
- Fabrizio Fabi & Sebastiano Laviola & Paolo Marullo Reedtz, 2004. "The treatment of SMEs loans in the New Basel Capital Accord: some evaluations," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 57(228), pages 29-70.
- John Fell & Garry Schinasi, 2005. "Assessing Financial Stability: Exploring the Boundaries of Analysis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192(1), pages 102-117, April.
- De Bandt, O. & Oung, V., 2004. "Assessment of “stress tests” conducted on the French banking system," Financial Stability Review, Banque de France, issue 5, pages 55-72, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:psl:bnlaqr:2006:33. 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: (Carlo D'Ippoliti)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.