Arbeitspapier
Macro-model-based stress testing of Basel II requirements
Basel II framework requires banks to conduct stress tests on their potential future minimum capital requirements and consider `at least the effect of mild recession scenarios'. We propose a stress testing framework for minimum capital requirements in which banks' corporate credit risks are modeled with macroeconomic variables. We can thus define scenarios such as a mild recession and consider the resulting credit risk developments and consequent changes in minimum capital requirements. We also emphasize the importance of stress testing future minimum capital requirements jointly with credit losses. Our illustrative results based on Finnish data underline the importance of such joint modeling. We also find that stress tests based on scenarios envisaged by regulators are not likely to imply binding capital constraints on banks.
- ISBN
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978-952-462-451-0
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 17/2008
- Classification
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Wirtschaft
Statistical Simulation Methods: General
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
Bankruptcy; Liquidation
- Subject
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Basel II
capital requirements
credit risk
loan losses
stress tests
- Event
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Geistige Schöpfung
- (who)
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Jokivuolle, Esa
Virolainen, Kimmo
Vähämaa, Oskari
- Event
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Veröffentlichung
- (who)
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Bank of Finland
- (where)
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Helsinki
- (when)
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2008
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Jokivuolle, Esa
- Virolainen, Kimmo
- Vähämaa, Oskari
- Bank of Finland
Time of origin
- 2008
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