Stress test impact and bank risk profile: Evidence from macro stress testing in Europe

Nicolás Gambetta, María Antonia García-Benau and Ana Zorio-Grima

International Review of Economics & Finance, 2019, vol. 61, issue C, 347-354

Abstract: This study investigates the risk profile of banks that get a significant capital level reduction in the EU-wide stress test exercises. Using the CAMELS multifaceted risk approach, we look into the connection between the bank risk factors and the macro stress testing impact on capital. The results show that financial institutions that are inefficient or complex, with low profitability levels and small loan portfolio, receive highly negative results in the stress tests. As this risk profile is not consistent over time, the results support the stress tests disciplinary role, suggesting risk management strategy adjustment through consideration of prior stress test outcomes.

Keywords: Bank regulatory capital; Risk profile; Stress test; Risk management (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:61:y:2019:i:c:p:347-354

DOI: 10.1016/j.iref.2018.04.001

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