Macro stress testing with sector specific bankruptcy models

Marianna Endresz and Zoltán Vásáry ()
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Zoltán Vásáry: Magyar Nemzeti Bank

No 2008/2, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: This paper employs the methodology of Wilson (1997) on Hungarian data to conduct a macro stress test in relation to banks’ corporate loan portfolio. First, sector specific models of bankruptcy are estimated, where the bankruptcy frequency is linked to the general health of the economy. Data on bankruptcy filings in Hungary between 1995 and 2005 are used. Then, after identifying relevant shocks, the estimated models are employed in Monte Carlo simulation to conduct a stress test on the Hungarian banking sector. Various loss measures are defined to quantify the impact of shocks and evaluate the resilience of the Hungarian banking sector. The sensitivity of the stress test results to the endogeneity of LGD and the prevailing macro environment are also examined.

Keywords: credit risk; bankruptcy; macro stress testing. (search for similar items in EconPapers)
JEL-codes: C32 G21 G33 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008
New Economics Papers: this item is included in nep-ban and nep-cba
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Persistent link: https://EconPapers.repec.org/RePEc:mnb:wpaper:2008/2

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