A Quick Stress Testing Methodology for Irish Banks

Quentin Bro de Comères, Farah Mugrabi () and Paul Lyons
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Quentin Bro de Comères: Central Bank of Ireland
Paul Lyons: Central Bank of Ireland

No 17/RT/25, Research Technical Papers from Central Bank of Ireland

Abstract: We develop a Quick Stress Testing (QST) methodology to provide high-frequency assessments of the resilience of the Irish banking system under different adverse macro-financial outlooks. The framework accommodates both internally generated scenarios—whose severity depends on the credit cycle—and externally provided ones. We estimate the capital depletion banks would face under such scenarios by interacting them with bank balance-sheet sensitivities to macroeconomic outcomes, derived from European Banking Authority (EBA) data. Through Monte Carlo simulations, we then ensure we are considering severe enough yet plausible scenarios. A key advantage of our streamlined methodology is that it can be applied more frequently than conventional stress-testing exercises.

Keywords: Stress Test; State-Dependent Local Projections; Macroprudential Policy; Credit Cycle; Bank Resilience. (search for similar items in EconPapers)
JEL-codes: E32 E58 G01 G21 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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