Banking Euro Area Stress Test Model

59 Pages Posted: 22 Sep 2020

See all articles by Katarzyna Barbara Budnik

Katarzyna Barbara Budnik

European Central Bank (ECB)

Mirco Balatti

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

Ivan Dimitrov

European Central Bank (ECB)

Johannes Groß

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

Date Written: September, 2020

Abstract

The Banking Euro Area Stress Test (BEAST) is a large scale semi-structural model developed to assess the resilience of the euro area banking system from a macroprudential perspective. The model combines the dynamics of a high number of euro area banks with that of the euro area economies. It reflects banks’ heterogeneity by replicating the structure of their balance sheets and profit and loss accounts. In the model, banks adjust their assets, interest rates, and profit distribution in line with the economic conditions they face. Bank responses feed back to the macroeconomic environment affecting credit supply conditions. When applied to a stress test of the euro area banking system, the model reveals higher system-wide capital depletion than the analogous constant balance sheet exercise.

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

JEL Classification: E37, E58, G21, G28

Suggested Citation

Budnik, Katarzyna Barbara and Balatti, Mirco and Dimitrov, Ivan and Groß, Johannes and Kleemann, Michael and Reichenbachas, Tomas and Sanna, Francesco and Sarychev, Andrei and Siņenko, Nadežda and Volk, Matjaz, Banking Euro Area Stress Test Model (September, 2020). ECB Working Paper No. 20202469, Available at SSRN: https://ssrn.com/abstract=3696729 or http://dx.doi.org/10.2139/ssrn.3696729

Katarzyna Barbara Budnik (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
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

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

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

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