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From Stress to Costress; Stress Testing Interconnected Banking Systems

  • Rodolfo Maino
  • Kalin Tintchev

This paper presents an integrated framework for assessing systemic risk. The framework models banks’ capital asset ratios as a function of future losses and credit growth using a generalized method of moments to calibrate shocks to credit quality and credit growth. The analysis is complemented by a simple measure of systemic risk, which captures tail risk comovement among banks in the system. The main contribution of this paper is to advance a simple framework to integrate systemic risk scenarios that assess the impact of aggregate and idiosyncratic factors. The analysis is based on CreditRisk+, which uses analytical techniques—similar to those applied in the insurance industry - to estimate banks’ credit portfolio loss distributions, making no assumptions about the cause of default.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/53.

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Length: 34
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/53
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  1. Raphael A. Espinoza & Ananthakrishnan Prasad, 2010. "Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects," IMF Working Papers 10/224, International Monetary Fund.
  2. Jorge A. Chan-Lau, 2006. "Fundamentals-Based Estimation of Default Probabilities: A Survey," IMF Working Papers 06/149, International Monetary Fund.
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  5. Zsófia Arvai & Karl Driessen & Ínci Ötker-Robe, 2009. "Regional Financial Interlinkages and Financial Contagion within Europe," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 522-540, December.
  6. Charles Goodhart & Miguel Segoviano, 2009. "Banking Stability Measures," FMG Discussion Papers dp627, Financial Markets Group.
  7. Liliana Schumacher & Theodore M. Barnhill, 2011. "Modeling Correlated Systemic Liquidity and Solvency Risks in a Financial Environment with Incomplete Information," IMF Working Papers 11/263, International Monetary Fund.
  8. Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009. "Funding liquidity risk in a quantitative model of systemic stability," Bank of England working papers 372, Bank of England.
  9. Jorge A. Chan-Lau, 2010. "The Global Financial Crisis and its Impacton the Chilean Banking System," IMF Working Papers 10/108, International Monetary Fund.
  10. Lelyveld, Iman van & Liedorp, Franka, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," MPRA Paper 806, University Library of Munich, Germany.
  11. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  12. Claudio Borio & Mathias Drehmann & Kostas Tsatsaronis, 2012. "Stress-testing macro stress testing: does it live up to expectations?," BIS Working Papers 369, Bank for International Settlements.
  13. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
  14. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  15. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  16. 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.
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