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Assessing portfolio credit risk changes in a sample of EU large and complex banking groups in reaction to macroeconomic shocks

Olli Castrén, Trevor Fitzpatrick and Matthias Sydow

No 1002, Working Paper Series from European Central Bank

Abstract: In terms of regulatory and economic capital, credit risk is the most significant risk faced by banks. We implement a credit risk model - based on publicly available information - with the aim of developing a tool to monitor credit risk in a sample of large and complex banking groups (LCBGs) in the EU. The results indicate varying credit risk profiles across these LCBGs and over time. Furthermore, the results show that large negative shocks to real GDP have the largest impact on the credit risk profiles of banks in the sample. Notwithstanding some caveats, the results demonstrate the potential value of this approach for monitoring financial stability. JEL Classification: C02, C19, C52, C61, E32

Keywords: macroeconomic shock measurement; Portfolio credit risk measurement; stress testing (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-ban, nep-mac, nep-reg and nep-rmg
Note: 416889
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091002

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