Forecasting Banks’ Corporate Loan Losses Under Stress: A New Corporate Default Model

Gabriel Bruneau, Thibaut Duprey and Ruben Hipp

No 122, Technical Reports from Bank of Canada

Abstract: We develop a corporate default model to forecast corporate loan losses of the Canadian banking sector under stress. First, we tackle a data gap by reconstructing historical default probabilities for banks’ loan portfolios. Second, we estimate tail elasticities to capture non-linear relationships between macrofinancial conditions and default probabilities. By explicitly modelling default probabilities associated with macroeconomic tail events, this model significantly improves the Bank of Canada’s stress-testing infrastructure.

Keywords: Economic models; Financial institutions; Financial stability; Financial system regulation and policies (search for similar items in EconPapers)
JEL-codes: C22 C53 G17 G28 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/2022/10/technical-report-122/ Abstract (text/html)
https://www.bankofcanada.ca/wp-content/uploads/2022/10/tr122.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocatr:122

Access Statistics for this paper

More papers in Technical Reports from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().