Stress testing German banks against a global credit crunch

Klaus Düllmann () and Thomas Kick

Financial Markets and Portfolio Management, 2014, vol. 28, issue 4, 337-361

Abstract: This paper investigates the impact of a global credit crunch on the corporate credit portfolios of large German banks using a two-stage approach. First, a macroeconometric simulation model (NiGEM) is used to forecast the impact of a substantial increase in the cost of business capital for firms worldwide in three particularly export-oriented industry sectors in Germany. Second, the impact of this economic multi-sector stress on bank credit portfolios is captured by a state-of-the-art Credit Metrics-type portfolio model with sector-dependent unobservable risk factors as drivers of the systematic risk. In our assessment of capital ratios, we confirm that both the increase of the capital charge for the unexpected loss and the increase in banks’ expected losses need to be considered. We also find that the availability of granular information at the level of borrower-specific probabilities of default has a significant impact on the stress test results. Copyright Swiss Society for Financial Market Research 2014

Keywords: Asset correlation; Portfolio credit risk; Macroeconomic stress tests; G21; G33; C13; C15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11408-014-0236-y

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