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A Quick Stress Testing Methodology for Irish Banks

Author

Listed:
  • Bro de Comères, Quentin

    (Central Bank of Ireland)

  • Mugrabi, Farah

    (Central Bank of Ireland & Université catholique de Louvain)

  • Lyons, Paul

    (Central Bank of Ireland)

Abstract

We develop a Quick Stress Testing (QST) methodology to provide high-frequency assessments of the resilience of the Irish banking system under different adverse macro-financial outlooks. The framework accommodates both internally generated scenarios—whose severity depends on the credit cycle—and externally provided ones. We estimate the capital depletion banks would face under such scenarios by interacting them with bank balance-sheet sensitivities to macroeconomic outcomes, derived from European Banking Authority (EBA) data. Through Monte Carlo simulations, we then ensure we are considering severe enough yet plausible scenarios. A key advantage of our streamlined methodology is that it can be applied more frequently than conventional stress-testing exercises.

Suggested Citation

  • Bro de Comères, Quentin & Mugrabi, Farah & Lyons, Paul, 2025. "A Quick Stress Testing Methodology for Irish Banks," Research Technical Papers 17/RT/25, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:17/rt/25
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/a-quick-stress-testing-methodology-for-irish-banks.pdf?sfvrsn=6b696f1a_6
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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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