Systemic Risk Measures and Macroprudential Stress Tests an Assessment Over the 2014 EBA Exercise

21 Pages Posted: 29 Aug 2015

See all articles by Chiara Pederzoli

Chiara Pederzoli

Università degli Studi di Milano-Bicocca - Istituto di Economia Amministrazione e Politica Aziendale

Costanza Torricelli

University of Modena and Reggio Emilia - Department of Economics; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN); Center for Research on Pensions and Welfare Policies (CeRP)

Date Written: July 29, 2015

Abstract

The European Banking Authority (EBA) stress tests, which aim to quantify banks’ capital shortfall in a potential future crisis (adverse economic scenario), further stimulated an academic debate over systemic risk measures and their predictive/informative content. Focusing on marked based measures, Acharya et al. (2010) provides a theoretical background to justify the use of Marginal Expected Shortfall (MES) for predicting the stress test results, and verify it on the first stress test conducted after the 2007-2008 crises on the US banking system (SCAP, Supervisory Capital Assessment Program). The aim of this paper is to further test the goodness of MES as a predictive measure, by analysing it in relation to the results of the 2014 European stress tests exercise conducted by EBA. Our results are strongly dependent on index used to capture the systemic distress event, whereby MES, based on a global market index, does not show association with EBA stress test, by contrast to F-MES, which is based on a financial market index, and has a significant information and predictive power. Our results may carry useful regulatory implication for the stress test exercises.

Keywords: systemic risk, stress test, macroprudential regulation

JEL Classification: G01, G10, G28

Suggested Citation

Pederzoli, Chiara and Torricelli, Costanza, Systemic Risk Measures and Macroprudential Stress Tests an Assessment Over the 2014 EBA Exercise (July 29, 2015). Available at SSRN: https://ssrn.com/abstract=2652636 or http://dx.doi.org/10.2139/ssrn.2652636

Chiara Pederzoli

Università degli Studi di Milano-Bicocca - Istituto di Economia Amministrazione e Politica Aziendale ( email )

20126 Milano
Italy

Costanza Torricelli (Contact Author)

University of Modena and Reggio Emilia - Department of Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy
+390592056733 (Phone)
+390592056937 (Fax)

HOME PAGE: http://www.economia.unimore.it/torricelli_costanza/index.htm

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

via Berengario 51
Modena, modena I-41100
Italy

Center for Research on Pensions and Welfare Policies (CeRP) ( email )

Via Real Collegio, 30
Moncalieri, Turin 10024
Italy

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