From the horse’s mouth: surveying responses to stress by banks and insurers

Jeroen Brinkhoff, Sam Langfield and Olaf Weeken

No 15, ESRB Occasional Paper Series from European Systemic Risk Board

Abstract: Existing stress tests do not capture feedback loops between individual institutions and the financial system. To identify feedback loops, the European Systemic Risk Board has developed macroprudential surveys that ask banks and insurers how they would behave in a macroeconomic stress scenario. In a pilot application of these surveys, we find evidence of herding behaviour in the banking sector, notably concerning credit retrenchment. Results show that the consequences can be large, potentially undoing the initial effects of banks’ remedial actions by worsening their solvency position. In contrast, insurers’ responses to the survey provide little evidence of herding in response to macroeconomic stress. These results highlight the usefulness of macroprudential surveys in identifying feedback loops. JEL Classification: E30, E44, G10, G18, G21, G22, G28

Keywords: financial instability; macroprudential; stress tests; surveys (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-rmg
Note: 2041423
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkops:201815

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