Template-Type: ReDIF-Paper 1.0
Author-Name: Marianna Valentinyi-Endrész
Author-X-Name-First: Marianna
Author-X-Name-Last: Valentinyi-Endrész
Author-Email: valentinyinem@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Name: Zoltán Vásáry
Author-X-Name-First: Zoltán
Author-X-Name-Last: Vásáry
Author-Email: vasaryz@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank
Title: Macro stress testing with sector specific bankruptcy models

Abstract: This paper employs the methodology of Wilson (1997) on Hungarian data to conduct a macro stress test in relation to banks’ corporate loan portfolio. First, sector specific models of bankruptcy are estimated, where the bankruptcy frequency is linked to the general health of the economy. Data on bankruptcy filings in Hungary between 1995 and 2005 are used. Then, after identifying relevant shocks, the estimated models are employed in Monte Carlo simulation to conduct a stress test on the Hungarian banking sector. Various loss measures are defined to quantify the impact of shocks and evaluate the resilience of the Hungarian banking sector. The sensitivity of the stress test results to the endogeneity of LGD and the prevailing macro environment are also examined.

Length: 37 pages
Creation-Date: 2008
File-URL: http://www.mnb.hu/letoltes/wp2008-2.pdf
File-Format: Application/pdf

Number: 2008/2
Classification-JEL: C32, G21, G33.
Keywords: credit risk, bankruptcy, macro stress testing.
Handle: RePEc:mnb:wpaper:2008/2