A value-at-risk approach to commercial real estate portfolio stress testing at US community banks

John Hall, David Kern, Timothy Yeager, Tom King and Kevin Lee

Journal of Risk Management in Financial Institutions, 2011, vol. 5, issue 1, 60-75

Abstract: The December 2006 federal regulatory guidance on commercial real estate (CRE) requires banks with significant concentrations in CRE lending to employ appropriate risk-management techniques to measure and manage the risk. Using vector autoregression techniques on historical CRE foreclosure rates, the authors develop a value-at-risk CRE portfolio stress-test methodology. They document the build-up of CRE concentrations in bank loan portfolios and explain how banks can use a spreadsheet-based simulation methodology to measure their portfolio risk across the entire loan portfolio.

Keywords: commercial real estate; community banks; portfolio stress testing; vector autoregression; value at risk (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2011
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