Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers
Drawing on the lessons from the global financial crisis and especially from its impact on the banking systems of Eastern Europe, the paper proposes a new practical approach to macroprudential stress testing. The proposed approach incorporates: (i)...
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Format: | Policy Research Working Paper |
Language: | English |
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2012
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Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120105144231 http://hdl.handle.net/10986/3221 |
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okr-10986-3221 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
language |
English |
topic |
ACCOUNTING ASSET CLASS ASSET CLASSES BALANCE SHEET BANK BORROWERS BANK CREDIT BANK FOR INTERNATIONAL SETTLEMENTS BANK LENDING BANK PROFITS BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKS BENCHMARK BOND BUFFER BUFFERS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ADEQUACY CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CASH FLOW CENTRAL BANK CLASSIFIED LOANS COLLATERAL CONSENSUS FORECASTS CONSUMER LOANS CONSUMERS CONTROL VARIABLES CORRECTIVE ACTION CREDIT BOOM CREDIT BOOMS CREDIT CARD CREDIT CARDS CREDIT CONTRACTS CREDIT EXPOSURES CREDIT GROWTH CREDIT LINES CREDIT PROVISION CREDIT RISK CREDIT RISK EXPOSURES CREDIT RISKS CREDITS CURRENCY APPRECIATION CURRENCY CRISES CURRENCY CRISIS CURRENCY DEPRECIATION CURRENCY VALUE DEBT DEBT HOLDER DECISION MAKING DEFAULT SITUATIONS DEFAULTS DEPENDENT DEPENDENT VARIABLE DEPRECIATIONS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DIVIDENDS DOLLAR EXCHANGE RATE DOMESTIC CURRENCY DUMMY VARIABLES ECONOMETRIC MODEL ECONOMIC GROWTH ECONOMIC RISK EFFECT OF EXCHANGE RATE CHANGES ELASTICITY EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMPLOYMENT EQUILIBRIUM MODELS EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXTERNAL COMPETITIVENESS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DISTRESS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRESSES FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEBT FOREIGN CURRENCY EXPOSURES FOREIGN CURRENCY LENDING FUTURE FINANCIAL CRISES FUTURE RESEARCH FUTURE VALUE GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROWTH RATES HOLDING INCOME INCOME EFFECT INCOME INEQUALITY INDIVIDUAL ASSET INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INFORMATION DISCLOSURE INSOLVENCY INSOLVENCY THRESHOLD INSTRUMENT INTEREST PARITY INTERNATIONAL BANK INTERNATIONAL BANKS JUDGMENT LENDING PRACTICES LETTERS OF CREDIT LIQUIDITY LIQUIDITY RISK LOAN LOAN COMMITMENTS LOAN CONCENTRATION LOAN LOSS LOAN LOSS PROVISIONS LOAN MATURITY LOANS TO CREDIT INSTITUTIONS LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMIC CONDITIONS MACROECONOMIC DATA MACROECONOMIC MODEL MACROECONOMIC MODELS MACROECONOMIC RISKS MACROECONOMIC SHOCKS MACROECONOMIC VARIABLE MACROECONOMIC VARIABLES MATURITY MISMATCHES MATURITY TRANSFORMATION MATURITY TRANSFORMATIONS MIDDLE INCOME COUNTRIES MONETARY FUND MORTGAGE MORTGAGE LOANS MULTIPLIERS NET EXPORTS NET LOSS NET LOSSES NOMINAL EXCHANGE RATE NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPEN ECONOMY OUTPUT LOSS OVERDUE LOANS PARTICULAR ASSET PENALTY POLICY RESPONSE PORTFOLIO PORTFOLIOS POTENTIAL EXPOSURE PROBABILITY OF DEFAULT PROBLEM BANKS PUBLIC AGENCIES REAL GDP REAL INTEREST REAL INTEREST RATE REGIONAL BANKS REGRESSION ANALYSIS REPAYMENT REPAYMENT CAPACITY RESERVES RETURN RETURN ON ASSETS RISK FACTORS RISK PROFILES RISK WEIGHTED ASSETS SECURITIES SERIAL CORRELATION SHAREHOLDERS SIMULATION TECHNIQUES SOLVENCY SOLVENCY PROBLEMS STEADY STATE SUBSIDIARIES SYSTEMIC RISK TIER 1 CAPITAL TRANSITION ECONOMIES TROUGH UNCERTAINTY VARIANCE-COVARIANCE MATRIX WEIGHTS ZERO WEIGHT |
spellingShingle |
ACCOUNTING ASSET CLASS ASSET CLASSES BALANCE SHEET BANK BORROWERS BANK CREDIT BANK FOR INTERNATIONAL SETTLEMENTS BANK LENDING BANK PROFITS BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKS BENCHMARK BOND BUFFER BUFFERS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ADEQUACY CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CASH FLOW CENTRAL BANK CLASSIFIED LOANS COLLATERAL CONSENSUS FORECASTS CONSUMER LOANS CONSUMERS CONTROL VARIABLES CORRECTIVE ACTION CREDIT BOOM CREDIT BOOMS CREDIT CARD CREDIT CARDS CREDIT CONTRACTS CREDIT EXPOSURES CREDIT GROWTH CREDIT LINES CREDIT PROVISION CREDIT RISK CREDIT RISK EXPOSURES CREDIT RISKS CREDITS CURRENCY APPRECIATION CURRENCY CRISES CURRENCY CRISIS CURRENCY DEPRECIATION CURRENCY VALUE DEBT DEBT HOLDER DECISION MAKING DEFAULT SITUATIONS DEFAULTS DEPENDENT DEPENDENT VARIABLE DEPRECIATIONS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DIVIDENDS DOLLAR EXCHANGE RATE DOMESTIC CURRENCY DUMMY VARIABLES ECONOMETRIC MODEL ECONOMIC GROWTH ECONOMIC RISK EFFECT OF EXCHANGE RATE CHANGES ELASTICITY EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMPLOYMENT EQUILIBRIUM MODELS EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXTERNAL COMPETITIVENESS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DISTRESS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRESSES FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEBT FOREIGN CURRENCY EXPOSURES FOREIGN CURRENCY LENDING FUTURE FINANCIAL CRISES FUTURE RESEARCH FUTURE VALUE GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROWTH RATES HOLDING INCOME INCOME EFFECT INCOME INEQUALITY INDIVIDUAL ASSET INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INFORMATION DISCLOSURE INSOLVENCY INSOLVENCY THRESHOLD INSTRUMENT INTEREST PARITY INTERNATIONAL BANK INTERNATIONAL BANKS JUDGMENT LENDING PRACTICES LETTERS OF CREDIT LIQUIDITY LIQUIDITY RISK LOAN LOAN COMMITMENTS LOAN CONCENTRATION LOAN LOSS LOAN LOSS PROVISIONS LOAN MATURITY LOANS TO CREDIT INSTITUTIONS LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMIC CONDITIONS MACROECONOMIC DATA MACROECONOMIC MODEL MACROECONOMIC MODELS MACROECONOMIC RISKS MACROECONOMIC SHOCKS MACROECONOMIC VARIABLE MACROECONOMIC VARIABLES MATURITY MISMATCHES MATURITY TRANSFORMATION MATURITY TRANSFORMATIONS MIDDLE INCOME COUNTRIES MONETARY FUND MORTGAGE MORTGAGE LOANS MULTIPLIERS NET EXPORTS NET LOSS NET LOSSES NOMINAL EXCHANGE RATE NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPEN ECONOMY OUTPUT LOSS OVERDUE LOANS PARTICULAR ASSET PENALTY POLICY RESPONSE PORTFOLIO PORTFOLIOS POTENTIAL EXPOSURE PROBABILITY OF DEFAULT PROBLEM BANKS PUBLIC AGENCIES REAL GDP REAL INTEREST REAL INTEREST RATE REGIONAL BANKS REGRESSION ANALYSIS REPAYMENT REPAYMENT CAPACITY RESERVES RETURN RETURN ON ASSETS RISK FACTORS RISK PROFILES RISK WEIGHTED ASSETS SECURITIES SERIAL CORRELATION SHAREHOLDERS SIMULATION TECHNIQUES SOLVENCY SOLVENCY PROBLEMS STEADY STATE SUBSIDIARIES SYSTEMIC RISK TIER 1 CAPITAL TRANSITION ECONOMIES TROUGH UNCERTAINTY VARIANCE-COVARIANCE MATRIX WEIGHTS ZERO WEIGHT Buncic, Daniel Melecky, Martin Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers |
geographic_facet |
Europe and Central Asia Europe and Central Asia |
relation |
Policy Research working paper ; no. WPS 5936 |
description |
Drawing on the lessons from the global
financial crisis and especially from its impact on the
banking systems of Eastern Europe, the paper proposes a new
practical approach to macroprudential stress testing. The
proposed approach incorporates: (i) macroeconomic stress
scenarios generated from both a country specific statistical
model and historical cross-country crises experience; (ii)
indirect credit risk due to foreign currency exposures of
unhedged borrowers; (iii) varying underwriting practices
across banks and their asset classes based on their relative
aggressiveness of lending; (iv) higher correlations between
the probability of default and the loss given default during
stress periods; (v) a negative effect of lending
concentration and residual loan maturity on unexpected
losses; and (vi) the use of an economic risk weighted
capital adequacy ratio as the relevant outcome indicator to
measure the resilience of banks to materializing credit
risk. The authors apply the proposed approach to a set of
Eastern European banks and discuss the results. |
format |
Publications & Research :: Policy Research Working Paper |
author |
Buncic, Daniel Melecky, Martin |
author_facet |
Buncic, Daniel Melecky, Martin |
author_sort |
Buncic, Daniel |
title |
Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers |
title_short |
Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers |
title_full |
Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers |
title_fullStr |
Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers |
title_full_unstemmed |
Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers |
title_sort |
macroprudential stress testing of credit risk : a practical approach for policy makers |
publishDate |
2012 |
url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120105144231 http://hdl.handle.net/10986/3221 |
_version_ |
1764386627906437120 |
spelling |
okr-10986-32212021-04-23T14:02:08Z Macroprudential Stress Testing of Credit Risk : A Practical Approach for Policy Makers Buncic, Daniel Melecky, Martin ACCOUNTING ASSET CLASS ASSET CLASSES BALANCE SHEET BANK BORROWERS BANK CREDIT BANK FOR INTERNATIONAL SETTLEMENTS BANK LENDING BANK PROFITS BANKING CRISES BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKS BENCHMARK BOND BUFFER BUFFERS BUSINESS CYCLE BUSINESS CYCLES CAPITAL ADEQUACY CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CASH FLOW CENTRAL BANK CLASSIFIED LOANS COLLATERAL CONSENSUS FORECASTS CONSUMER LOANS CONSUMERS CONTROL VARIABLES CORRECTIVE ACTION CREDIT BOOM CREDIT BOOMS CREDIT CARD CREDIT CARDS CREDIT CONTRACTS CREDIT EXPOSURES CREDIT GROWTH CREDIT LINES CREDIT PROVISION CREDIT RISK CREDIT RISK EXPOSURES CREDIT RISKS CREDITS CURRENCY APPRECIATION CURRENCY CRISES CURRENCY CRISIS CURRENCY DEPRECIATION CURRENCY VALUE DEBT DEBT HOLDER DECISION MAKING DEFAULT SITUATIONS DEFAULTS DEPENDENT DEPENDENT VARIABLE DEPRECIATIONS DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DIVIDENDS DOLLAR EXCHANGE RATE DOMESTIC CURRENCY DUMMY VARIABLES ECONOMETRIC MODEL ECONOMIC GROWTH ECONOMIC RISK EFFECT OF EXCHANGE RATE CHANGES ELASTICITY EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMPLOYMENT EQUILIBRIUM MODELS EXCHANGE RATE EXCHANGE RATE MOVEMENTS EXTERNAL COMPETITIVENESS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DISTRESS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRESSES FINANCIAL SYSTEM FINANCIAL SYSTEMS FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEBT FOREIGN CURRENCY EXPOSURES FOREIGN CURRENCY LENDING FUTURE FINANCIAL CRISES FUTURE RESEARCH FUTURE VALUE GDP PER CAPITA GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GROWTH RATES HOLDING INCOME INCOME EFFECT INCOME INEQUALITY INDIVIDUAL ASSET INDIVIDUAL BANK INDIVIDUAL BANKS INFLATION INFORMATION DISCLOSURE INSOLVENCY INSOLVENCY THRESHOLD INSTRUMENT INTEREST PARITY INTERNATIONAL BANK INTERNATIONAL BANKS JUDGMENT LENDING PRACTICES LETTERS OF CREDIT LIQUIDITY LIQUIDITY RISK LOAN LOAN COMMITMENTS LOAN CONCENTRATION LOAN LOSS LOAN LOSS PROVISIONS LOAN MATURITY LOANS TO CREDIT INSTITUTIONS LOCAL CURRENCY LONG-RUN EQUILIBRIUM MACROECONOMIC CONDITIONS MACROECONOMIC DATA MACROECONOMIC MODEL MACROECONOMIC MODELS MACROECONOMIC RISKS MACROECONOMIC SHOCKS MACROECONOMIC VARIABLE MACROECONOMIC VARIABLES MATURITY MISMATCHES MATURITY TRANSFORMATION MATURITY TRANSFORMATIONS MIDDLE INCOME COUNTRIES MONETARY FUND MORTGAGE MORTGAGE LOANS MULTIPLIERS NET EXPORTS NET LOSS NET LOSSES NOMINAL EXCHANGE RATE NON-PERFORMING LOANS NONPERFORMING LOANS NPL OPEN ECONOMY OUTPUT LOSS OVERDUE LOANS PARTICULAR ASSET PENALTY POLICY RESPONSE PORTFOLIO PORTFOLIOS POTENTIAL EXPOSURE PROBABILITY OF DEFAULT PROBLEM BANKS PUBLIC AGENCIES REAL GDP REAL INTEREST REAL INTEREST RATE REGIONAL BANKS REGRESSION ANALYSIS REPAYMENT REPAYMENT CAPACITY RESERVES RETURN RETURN ON ASSETS RISK FACTORS RISK PROFILES RISK WEIGHTED ASSETS SECURITIES SERIAL CORRELATION SHAREHOLDERS SIMULATION TECHNIQUES SOLVENCY SOLVENCY PROBLEMS STEADY STATE SUBSIDIARIES SYSTEMIC RISK TIER 1 CAPITAL TRANSITION ECONOMIES TROUGH UNCERTAINTY VARIANCE-COVARIANCE MATRIX WEIGHTS ZERO WEIGHT Drawing on the lessons from the global financial crisis and especially from its impact on the banking systems of Eastern Europe, the paper proposes a new practical approach to macroprudential stress testing. The proposed approach incorporates: (i) macroeconomic stress scenarios generated from both a country specific statistical model and historical cross-country crises experience; (ii) indirect credit risk due to foreign currency exposures of unhedged borrowers; (iii) varying underwriting practices across banks and their asset classes based on their relative aggressiveness of lending; (iv) higher correlations between the probability of default and the loss given default during stress periods; (v) a negative effect of lending concentration and residual loan maturity on unexpected losses; and (vi) the use of an economic risk weighted capital adequacy ratio as the relevant outcome indicator to measure the resilience of banks to materializing credit risk. The authors apply the proposed approach to a set of Eastern European banks and discuss the results. 2012-03-19T17:28:30Z 2012-03-19T17:28:30Z 2012-01-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120105144231 http://hdl.handle.net/10986/3221 English Policy Research working paper ; no. WPS 5936 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper Europe and Central Asia Europe and Central Asia |