 Assessing financial stability: The Capital and Loss Assessment under Stress Scenarios (CLASS) modelBeverly Hirtle, Anna Kovner, James Vickery () and Meru Bhanot Journal of Banking & Finance, 2016, vol. 69, issue S1, S35-S55 Abstract: The CLASS model is a top-down capital stress testing framework that uses public data, simple econometric models and auxiliary assumptions to project the effect of macroeconomic scenarios on U.S. banking firms. Through the lens of the model, we find that the total banking system capital shortfall under stressful macroeconomic conditions began to rise 4years before the financial crisis, peaking in the fourth quarter of 2008. The capital gap has since fallen sharply, and is now significantly below pre-crisis levels. In the cross-section, banking firms estimated to be most sensitive to macroeconomic conditions also have higher capital ratios, consistent with a “precautionary” view of bank capital, though this behavior is evident only since the crisis. We interpret our results as evidence that the resiliency of the U.S. banking system has improved since the financial crisis, and also as an illustration of the value of stress testing as a macroprudential policy tool. Keywords: Capital; Bank; Stress testing; Systemic risk; Financial stability (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:69:y:2016:i:s1:p:s35-s55 DOI: 10.1016/j.jbankfin.2015.09.021 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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