Macroprudential Stress Test of the Euro Area Banking System Amid the Coronavirus (COVID-19) Pandemic

64 Pages Posted: 18 May 2022

See all articles by Katarzyna Barbara Budnik

Katarzyna Barbara Budnik

European Central Bank (ECB)

Louis Boucherie

European Central Bank (ECB)

Marcin Borsuk

European Central Bank (ECB)

Ivan Dimitrov

European Central Bank (ECB)

Giacomo Giraldo

European Central Bank (ECB)

Johannes Groß

European Central Bank (ECB); Fraunhofer FIT

Martina Jancokova

European Central Bank

Max Lampe

European Central Bank (ECB)

Gianluca Vagliano

European Central Bank (ECB)

Matjaz Volk

Bank of Slovenia

Date Written: October 1, 2021

Abstract

The macroprudential stress test for 2021-23 aims to provide insights into the resilience of the European banking sector following the coronavirus (COVID- 19) crisis. The assessment builds on a macro-micro model with individual euro area economies and significant banks, and the two scenarios from the 2021 EU- wise stress test exercise. In the baseline scenario, the system-wide transitional CET1 ratio goes down from 15.5% in 2020 to its pre-pandemic level of 14.4%. In the adverse scenario, the CET1 ratio drops by 5.2 percentage points from 15.5% in 2020 to 10.3% in 2023. Macro-financial amplification in the macroprudential stress test results in higher capital depletion in the adverse scenario compared to the EBA/Single Supervisory Mechanism (SSM) stress test. Bank lending expands in the baseline scenario and shrinks in the adverse scenario. The outstanding COVID-19 mitigation policies have a pronounced positive lending effect, especially in the adverse scenario. The banking sector-real economy feedback loop amplifies the severity of the adverse scenario. The adopted assumption on banks’ intentions to use capital buffers can affect the outcomes of the macroprudential stress test.

Keywords: COVID-19, impact assessment, banking sector, real-financial feedback mechanism

JEL Classification: E37, E58, G21, G28

Suggested Citation

Budnik, Katarzyna Barbara and Boucherie, Louis and Borsuk, Marcin and Dimitrov, Ivan and Giraldo, Giacomo and Groß, Johannes and Jancokova, Martina and Lampe, Max and Vagliano, Gianluca and Volk, Matjaz, Macroprudential Stress Test of the Euro Area Banking System Amid the Coronavirus (COVID-19) Pandemic (October 1, 2021). ECB Occasional Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4112397 or http://dx.doi.org/10.2139/ssrn.4112397

Katarzyna Barbara Budnik (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Louis Boucherie

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marcin Borsuk

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

Giacomo Giraldo

European Central Bank (ECB) ( email )

Johannes Groß

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Fraunhofer FIT

Germany

Martina Jancokova

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Max Lampe

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gianluca Vagliano

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Matjaz Volk

Bank of Slovenia ( email )

Slovenska cesta 35
Ljubljana, 1505
Slovenia

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