From Stress to Costress: Stress Testing Interconnected Banking Systems

IMF Working Papers, February 1, 2012

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From Stress to Costress: Stress Testing Interconnected Banking Systems

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Bibliographic details

• Authors: Rodolfo Maino, Kalin I Tintchev
• Published: February 1, 2012
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475502220.001

Framework and purpose

• Presents an integrated framework for assessing systemic risk in banking systems.
• Models banks’ capital asset ratios as a function of future losses and credit growth.
• Main contribution: advances a simple framework to integrate systemic risk scenarios that assess the impact of aggregate and idiosyncratic factors.

Methodology and model components

• Uses a generalized method of moments to calibrate shocks to credit quality and credit growth.
• Analysis is based on CreditRisk+, which:
  • uses analytical techniques similar to those applied in the insurance industry;
  • estimates banks’ credit portfolio loss distributions;
  • makes no assumptions about the cause of default.
• Complemented by a simple measure of systemic risk that captures tail risk comovement among banks in the system.

Key findings and analytical features

• Emphasizes integration of aggregate and idiosyncratic factors in systemic stress scenarios.
• Focus on modeling the interaction between credit growth, credit quality, and capital asset ratios.
• Introduces a marginal contribution to systemic risk perspective (term appears in Keywords).

Policy relevance and applications

• Framework supports stress testing that incorporates interconnectedness and comovement in tail risks.
• Designed to inform financial regulation and supervision, financial sector policy and analysis, and stress testing practice.
• Relevant subject areas: Banking, Credit, Credit risk, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Money, Nonperforming loans, Stress testing, Systemic risk.

Publication and metadata

• Authors: Rodolfo Maino, Kalin I Tintchev
• Date: February 1, 2012
• Series: Working Paper No. 2012/053
• Issue: 053
• Volume: 2012
• Pages: 34
• DOI: https://doi.org/10.5089/9781475502220.001
• Stock No: WPIEA2012053
• ISBN: 9781475502220
• ISSN: 1018-5941

Source: From Stress to Costress: Stress Testing Interconnected Banking Systems, IMF Working Paper No. 2012/053.

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