Backtesting European Stress Tests / Thomas Philippon, Pierre Pessarossi, Boubacar Camara.

Format:

Book

Author/Creator:

Philippon, Thomas.

Contributor:

National Bureau of Economic Research.

Pessarossi, Pierre.

Camara, Boubacar.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23083.

NBER working paper series no. w23083

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We provide a first evaluation of the quality of banking stress tests in the European Union. We use stress tests scenarios and banks' estimated losses to recover bank level exposures to macroeconomic factors. Once macro outcomes are realized, we predict banks' losses and compare them to actual losses. We find that stress tests are informative and unbiased on average. Model-based losses are good predictors of realized losses and of banks' equity returns around announcements of macroeconomic news. When we perform our tests for the Union as a whole, we do not detect biases in the construction of the scenarios, or in the estimated losses across banks of different sizes and ownership structures. There is, however, some evidence that exposures are underestimated in countries with ex-ante weaker banking systems. Our results have implications for the modeling of credit losses, quality controls of supervision, and the political economy of financial regulation.

Notes:

Print version record

January 2017.