From Stress to Costress: Stress Testing Interconnected Banking Systems

Rodolfo Maino and Kalin Tintchev

No 2012/053, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; interest rate; Stress Testing; Credit Risk; Systemic Risk; credit growth; portfolio loss distribution; NPL ratio; credit loss; risk weighted assets; vars conditional; marginal contribution to systemic risk; credit quality; Credit; Nonperforming loans; Global (search for similar items in EconPapers)
Pages: 34
Date: 2012-02-01
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