From Stress to Costress: Stress Testing Interconnected Banking Systems

34 Pages Posted: 28 Feb 2012

See all articles by Rodolfo Maino

Rodolfo Maino

International Monetary Fund (IMF)

Kalin Tintchev

affiliation not provided to SSRN

Date Written: February 2012

Abstract

This paper presents an integrated framework for assessing systemic risk. The framework models banks’ capital asset ratios as a function of future losses and credit growth using a generalized method of moments to calibrate shocks to credit quality and credit growth. The analysis is complemented by a simple measure of systemic risk, which captures tail risk comovement among banks in the system. The main contribution of this paper is to advance a simple framework to integrate systemic risk scenarios that assess the impact of aggregate and idiosyncratic factors. The analysis is based on CreditRisk , which uses analytical techniques - similar to those applied in the insurance industry - to estimate banks’ credit portfolio loss distributions, making no assumptions about the cause of default.

Keywords: Banking systems, Credit expansion, Credit risk, Economic models, External shocks, Risk management

Suggested Citation

Maino, Rodolfo and Tintchev, Kalin, From Stress to Costress: Stress Testing Interconnected Banking Systems (February 2012). IMF Working Paper No. 12/53, Available at SSRN: https://ssrn.com/abstract=2012238

Rodolfo Maino (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kalin Tintchev

affiliation not provided to SSRN

No Address Available

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