Stress-testing banks’ corporate credit portfolio

Olivier de Bandt, N. Dumontaux, V. Martin and D. Médée

Debats Economiques et financiers from Banque de France

Abstract: The paper describes the methods used by the French Banking Supervision Authority (ACP) to run stress tests for the corporate credit portfolio, through credit migration matrices (or transition matrices). This approach is currently used for “top-down” stress tests exercises. Developed for Basel II, it is still relevant under the Basel III framework. It includes sufficient flexibility to accommodate the severe crisis period observed recently. The paper introduces the basic model underlying the approach, largely based on Merton’s model; it then describes carefully the different steps for its practical implementation, providing hints on how it can be extended to other banking sectors. Finally the paper comments a few outputs of a stress testing exercise.

Keywords: credit risk; corporate; stress tests; migration matrices. (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 G32 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Stress-testing banks’ corporate credit portfolio (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:decfin:2

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