Stress-Testing Banks’ Profitability: The Case of French Banks

Jerome Coffinet and Surong Lin
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Surong Lin: Banque de France, Postal: 1, rue de la Vrillière 75001 Paris

Journal of Financial Perspectives, 2013, vol. 1, issue 2, 67-80

Abstract: We propose a stress-testing framework to evaluate the sensitivity of banks’ profitability to plausible but severe adverse macroeconomic shocks. Specifically, we test the resilience of French banks’ profitability over the period 1993–2009. First, we identify the macroeconomic and financial variables (GDP growth, interest rate maturity spread, stock market’s volatility) and bank-specific variables (size, capital ratio, ratio of noninterest income to assets) that significantly determine banks’ profitability. Second, we propose macroeconomic stress-testing exercises showing that French banks’ profitability is resilient to major adverse macroeconomic scenarios. Specifically, our findings highlight that even severe recessions would leave the French banking system profitable.

Keywords: bank profitability; dynamic panel estimation; stress test (search for similar items in EconPapers)
JEL-codes: C23 G21 L20 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Working Paper: Stress testing banks' profitability: the case of French banks (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0018

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