Macro stress tests and history‐based stressed PD: the case of Hong Kong

Michael Wong and Yat‐fai Lam

Journal of Financial Regulation and Compliance, 2008, vol. 16, issue 3, 251-260

Abstract: Purpose - The purpose of this paper is to discuss issues relating to stress testing methods for credit risks in banks. Also, it suggests a solution to bank supervisors on evaluating stress test results. Design/methodology/approach - Discussion is based on cases analysis on a stress period of the Hong Kong banking sector. Findings - The paper finds that econometric modeling does not work well modeling stress scenarios. The stressed probability of default (PD) provided by Basel II would be much higher than stressed PD observed in the history. Practical implications - Bank supervisors should develop cost‐effective methods to monitor the stress test results reported by banks. Originality/value - The paper addresses the issues of stress testing and provides a practical solution for bank supervisors to monitor stress test results reported by banks.

Keywords: Financial models; Financial institutions; Modelling; Econometrics; Stress; Hong Kong (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:v:16:y:2008:i:3:p:251-260

DOI: 10.1108/13581980810888868

Access Statistics for this article

Journal of Financial Regulation and Compliance is currently edited by Prof John Ashton

More articles in Journal of Financial Regulation and Compliance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().