M-Press-CreditRisk: A Holistic Micro- and Macroprudential Approach to Capital Requirements

60 Pages Posted: 27 Jun 2017

See all articles by Natalia Tente

Natalia Tente

Deutsche Bundesbank

Natalja von Westernhagen

Deutsche Bundesbank

Ulf D. Slopek

Deutsche Bundesbank

Date Written: 2017

Abstract

M-PRESS-CreditRisk is a new top-down macro stress testing framework that can help supervisors gauge banks' capital adequacy related to credit risk. For the first time, it combines calibration of microprudential capital requirements and macroprudential buffers in a unified, coherent framework. Its core element is an advanced credit portfolio model - SystemicCreditRisk - built upon a rich, non-linear dependence structure for interconnected bank portfolios. Incorporating numerous sector/country-specific systematic factors, the model focuses on credit default concentration risk as a major source of large losses that may have systemic impact. A test run using a sample of 12 systemically important German banks provides measures for systemic credit risk and the banks' contributions to it in both baseline and stress scenarios. Capital requirements calibrated to the results combine elements of Pillar 1 and Pillar 2, whereas macroprudential buffers can internalize the system's tail risk. The maximum model-based combined requirements range between 6.3% and 27.2% of credit RWA depending on the bank. A comparison with the reported capital figures suggests that there appears to be enough capital in the banking system, but its distribution might be suboptimal from a systemic point of view as the capital level of a number of banks might need improvement.

Keywords: Systemic Credit Risk, Tail Risk, Stress Testing, Microprudential Capital Requirements, Systemic Risk Buffer, O-SII Buffer, Hierarchical Archimedean Copula

JEL Classification: C15, C23, C63, G21, G28

Suggested Citation

Tente, Natalia and von Westernhagen, Natalja and Slopek, Ulf D., M-Press-CreditRisk: A Holistic Micro- and Macroprudential Approach to Capital Requirements (2017). Bundesbank Discussion Paper No. 15/2017. Available at SSRN: https://ssrn.com/abstract=2993103

Natalia Tente (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Natalja Von Westernhagen

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Ulf D. Slopek

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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