Making Sense of the EU Wide Stress Test: A Comparison with the SRISK Approach

39 Pages Posted: 19 Jun 2016

See all articles by Timotej Homar

Timotej Homar

University of Amsterdam; Tinbergen Institute

Heinrich Kick

European Central Bank (ECB); Goethe University Frankfurt

Carmelo Salleo

European Central Bank (ECB)

Date Written: June 17, 2016

Abstract

We analyse the SRISK measure with respect to its usage as a benchmark for the ECB/EBA 2014 stress test. By regressing the ECB/EBA stress test impact and the SRISK stress impact on a set of factors that are commonly associated with bank credit losses and bank vulnerability, we find that the ECB/EBA stress impact is consistent with findings in the literature on credit losses. In contrast, the SRISK measure bears much less relation to these factors; it is largely driven by the banks’ leverage ratio. These differences are deeply rooted in the construction of the respective measures. With its focus on losses to bank equity, the SRISK measure appears poorly matched as a benchmark for the supervisory stress test in Europe, which is centred on losses to banks’ total assets.

Keywords: SRISK, stress test evaluation, asset quality review

JEL Classification: C21, G01, G21

Suggested Citation

Homar, Timotej and Kick, Heinrich and Salleo, Carmelo, Making Sense of the EU Wide Stress Test: A Comparison with the SRISK Approach (June 17, 2016). ECB Working Paper No. 1920, Available at SSRN: https://ssrn.com/abstract=2797376 or http://dx.doi.org/10.2139/ssrn.2797376

Timotej Homar (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Heinrich Kick

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Carmelo Salleo

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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