Macroprudential Stress Test of the Euro Area Banking System

62 Pages Posted: 3 Jul 2019

See all articles by Katarzyna Barbara Budnik

Katarzyna Barbara Budnik

European Central Bank (ECB) - Directorate Financial Stability and Supervision

Mirco Balatti

Henley Business School - ICMA Centre; European Central Bank (ECB)

Giovanni Covi

European Central Bank (ECB); University of Verona

Ivan Dimitrov

European Central Bank (ECB)

Johannes Groß

European Central Bank (ECB)

Ib Hansen

European Central Bank (ECB)

Michael Kleemann

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Tomas Reichenbachas

Bank of Lithuania

Francesco Sanna

European Central Bank (ECB)

Andrei Sarychev

European Central Bank (ECB)

Nadežda Siņenko

Bank of Latvia

Matjaz Volk

Bank of Slovenia, Financial Stability

Katharina Cera

European Central Bank (ECB)

Giovanni di Iasio

Bank of Italy

Margherita Giuzio

European Central Bank (ECB)

Harun Mirza

European Central Bank (ECB)

Diego Moccero

European Central Bank (ECB)

Giulio Nicoletti

European Central Bank

Cosimo Pancaro

European Central Bank (ECB)

Spyros Palligkinis

European Central Bank (ECB)

Date Written: July 2, 2019

Abstract

This paper presents an approach to a macroprudential stress test for the euro area banking system, comprising the 91 largest euro area credit institutions across 19 countries. The approach involves modelling banks’ reactions to changing economic conditions. It also examines the effects of adverse scenarios on economies and the financial system as a whole by acknowledging a broad set of interactions and interdependencies between banks, other market participants, and the real economy. Our results highlight the importance of the starting level of bank capital, bank asset quality, and banks’ adjustments for the propagation of shocks to the financial sector and real economy.

Keywords: macro stress test, macroprudential policy, banking sector deleveraging, real-financial feedback mechanism

JEL Classification: E37, E58, G21, G28

Suggested Citation

Budnik, Katarzyna Barbara and Balatti, Mirco and Covi, Giovanni and Dimitrov, Ivan and Groß, Johannes and Hansen, Ib and Kleemann, Michael and Reichenbachas, Tomas and Sanna, Francesco and Sarychev, Andrei and Siņenko, Nadežda and Volk, Matjaz and Cera, Katharina and di Iasio, Giovanni and Giuzio, Margherita and Mirza, Harun and Moccero, Diego and Nicoletti, Giulio and Pancaro, Cosimo and Palligkinis, Spyros, Macroprudential Stress Test of the Euro Area Banking System (July 2, 2019). ECB Occasional Paper No. 226 (2019); ISBN 978-92-899-3691-0. Available at SSRN: https://ssrn.com/abstract=3414174

Katarzyna Barbara Budnik (Contact Author)

European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Mirco Balatti

Henley Business School - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA, RG6 6JE
United Kingdom

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giovanni Covi

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

University of Verona ( email )

Via dell'Artigliere, 8
Verona, 37129
Italy

Ivan Dimitrov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Johannes Groß

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ib Hansen

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Michael Kleemann

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Tomas Reichenbachas

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Francesco Sanna

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andrei Sarychev

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Nadežda Siņenko

Bank of Latvia ( email )

Riga, 1050
United States

Matjaz Volk

Bank of Slovenia, Financial Stability ( email )

Slovenska cesta 35
Ljubljana, 1505
Slovenia

Katharina Cera

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giovanni Di Iasio

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Margherita Giuzio

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Harun Mirza

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Diego Moccero

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Giulio Nicoletti

European Central Bank ( email )

Kaiserstrasse 29
Frankfurt am Main, Hessen 60311
Germany

Cosimo Pancaro

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Spyros Palligkinis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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