Stress testing and the representative bank model

Paul Kupiec

Journal of Risk Management in Financial Institutions, 2019, vol. 12, issue 4, 342-373

Abstract: Since the Supervisory Capital Assessment Program, US regulators have used representative bank stress test models to benchmark individual bank forecasts made using models calibrated to match a bank’s own historical performance. Stress scenario forecasts from a representative bank model are compared with bank-specific models when all models are estimated using an identical methodology and only differ by the historical bank-specific calibration data utilised. Under an identical stress scenario, forecasts from the representative model differ dramatically from bank-specific model forecasts and actual bank outcomes. The results highlight inconsistencies that can arise when a regulator uses a representative bank model benchmark.

Keywords: stress test model benchmarks; model accuracy (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2019:v:12:i:4:p:342-373

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