Stress testing credit risk portfolios

Michael Jacobs Jr ()
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Michael Jacobs Jr: Deloitte & Touche LLP, http://www.deloitte.com/us/assurance

Journal of Financial Transformation, 2013, vol. 37, 53-76

Abstract: In this study we survey practices and supervisory expectations for stress testing (ST) in a credit risk framework for banking book exposures. We introduce and motivate ST; and discuss the function, supervisory requirements and expectations, credit risk parameters, interpretation results with respect to ST. This includes a typology of ST (uniform testing, risk factor sensitivities, scenario analysis; and historical, statistical and hypothetical scenarios), and procedures for conducting ST. We conclude with a simple and practical stress testing example using a ratings migration based approach.

Keywords: stress testing; credit risk; credit risk portfolio; credit risk framework; banking book exposure (search for similar items in EconPapers)
JEL-codes: G21 G24 G32 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1556

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