Economics at your fingertips  

Bank Stress Testing: A Stochastic Simulation Framework to Assess Banks’ Financial Fragility †

Giuseppe Montesi () and Giovanni Papiro ()
Additional contact information
Giuseppe Montesi: School of Economics and Management, University of Siena, 53100 Siena, Italy
Giovanni Papiro: School of Economics and Management, University of Siena, 53100 Siena, Italy

Risks, 2018, vol. 6, issue 3, 1-54

Abstract: We present a stochastic simulation forecasting model for stress testing that is aimed at assessing banks’ capital adequacy, financial fragility, and probability of default. The paper provides a theoretical presentation of the methodology and the essential features of the forecasting model on which it is based. Also, for illustrative purposes and to show in practical terms how to apply the methodology and the types of outcomes and analysis that can be obtained, we report the results of an empirical application of the methodology proposed to the Global Systemically Important Banks (G-SIB) banks. The results of the stress test exercise are compared with the results of the supervisory stress tests performed in 2014 by the Federal Reserve and EBA/ECB.

Keywords: capital adequacy; economic capital; financial fragility; liquidity risk; Monte Carlo simulation; probability of default; Solvency risk; SREP; stochastic simulation; stress testing (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

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:

Access Statistics for this article

Risks is currently edited by Prof. Dr. J. David Cummins

More articles in Risks from MDPI, Open Access Journal
Bibliographic data for series maintained by XML Conversion Team ().

Page updated 2018-10-07
Handle: RePEc:gam:jrisks:v:6:y:2018:i:3:p:82-:d:164289