Many a little makes a mickle: Stress testing small and medium-sized German banks
Philipp Koziol and
The Quarterly Review of Economics and Finance, 2018, vol. 68, issue C, 237-253
We develop a macroeconomic portfolio stress test that is specifically geared towards small and medium-sized German banks. We combine a credit risk stress test which simulates credit impairments via a CreditMetrics type multi-factor portfolio model with an income stress test in the form of dynamic panel data regressions. Based on a stress scenario that extends experience of the financial crisis by integrating the current low-interest-rate environment, we analyse the stress impact on banks’ capital ratios. Our results show that German small and medium sized banks prove to be very resilient to macroeconomic stress. Furthermore, the main stress drivers prove to be credit impairments rather than other net income components.
Keywords: Macro stress tests; Macroprudential supervision; Small and medium-sized banks; Income stress test; Credit risk (search for similar items in EconPapers)
JEL-codes: C13 C15 G21 G33 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:68:y:2018:i:c:p:237-253
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