Can macro variables used in stress testing forecast the performance of banks?

Luca Guerrieri and Michelle Welch

No 2012-49, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: When stress tests for the banking sector use a macroeconomic scenario, an unstated premise is that macro variables should be useful factors in forecasting the performance of banks. We assess whether variables such as the ones included in stress tests for U.S. bank holding companies help improve out of sample forecasts of chargeoffs on loans, revenues, and capital measures, relative to forecasting models that exclude a role for macro factors. Using only public data on bank performance, we find the macro variables helpful, but not for all measures. Moreover, even our best-performing models imply bands of uncertainty around the forecasts so large as to make it challenging to distinguish the implications of alternative macro scenarios.

Date: 2012
New Economics Papers: this item is included in nep-ban, nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2012/201249/201249abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2012/201249/201249pap.pdf (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:fip:fedgfe:2012-49

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().