From Stress to Costress: Stress Testing Interconnected Banking Systems
Electronic Access:
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Summary:
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.
Series:
Working Paper No. 2012/053
Subject:
Banking Credit Credit risk Financial institutions Financial regulation and supervision Financial sector policy and analysis Money Nonperforming loans Stress testing Systemic risk
English
Publication Date:
February 1, 2012
ISBN/ISSN:
9781475502220/1018-5941
Stock No:
WPIEA2012053
Pages:
34
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