Cross-border macro stress-testing: progress and future challenges for the EU

doi:10.1017/CBO9780511635618.017

15 - Cross-border macro stress-testing: progress and future challenges for the EU

from Part II - Applications

Published online by Cambridge University Press: 18 December 2009

John Fell and

Edited by

Mario Quagliariello: Affiliation:
European Banking Authority, London

Book contents

Get access

Summary

Introduction

As seen in the previous chapters, macro stress-testing has become an integral part of the financial stability assessment work being carried out by many central banks around the world. Within the European Union (EU), the process of financial integration, particularly intense within the euro area, is leading to a greater degree of interconnectedness between national financial systems. Although this interconnectedness creates a strong case for conducting macro stress tests which take account of cross-border dimensions, progress in this area has been relatively slow for at least two main reasons. The first reason is practical: there is a paucity of harmonised data across countries with sufficient time spans to allow for quantitative assessment of the relevant sources of risk and exposures. The second reason is institutional: the national responsibility for financial supervision in the EU means that the scope for sharing information across institutions and on a cross-border basis may be limited by national practices and legal restrictions.

Undoubtedly the greatest methodological advances in macro stress-testing have been made in the area of quantification of credit risk. An important reason for this is that effective management of credit risk is paramount for commercial banks. As concerns cross-border linkages across banking sectors, two main channels for credit risk can be distinguished: common exposures to the same (or systemic) sources of risk and balance sheet linkages between institutions.

Type: Chapter
Information: Stress-testing the Banking System
Methodologies and Applications
, pp. 278 - 296

DOI: https://doi.org/10.1017/CBO9780511635618.017 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Angelini, P., Maresca, G. and Russo, D. (1996), ‘Systemic Risk in the Netting System’, Journal of Banking and Finance, 20 (5), 853–68.CrossRef Google Scholar

Arpa, M., Giulini, I., Ittner, A. and Pauer, F. (2001), ‘The Influence of Macroeconomic Developments on Austrian Banks: Implications for Banking Supervision’, BIS Paper, 1.Google Scholar

Bethlendi, A. (2006), ‘Provisioning Practice of Hungarian banks’, MNB Occasional Paper, 56.Google Scholar

Beyeler, W., Glass, R., Bech, M. and Soramaki, K. (2006), ‘Congestion and Cascades in Payment Systems’, FRB of New York Staff Report, 259.Google Scholar

Boss, M., Elsinger, H., Thurner, S. and Summer, M. (2004), ‘Network Topology of the Interbank Market’, Quantitative Finance, 4, 1–8.CrossRef Google Scholar

Čihák, M. and Ong, L. (2007), ‘Estimating Spillover Risk Among Large EU banks’, IMF Working Paper, 267.

Cocco, J., Gomes, F. and Martins, N. (2005), ‘Lending Relationships in the Interbank Market’, London Business School Working Paper.

Decressin, J. (2006), ‘A Bank Business Correlation Perspective on Pan-European Supervision’, Euro Area Policies – Selected Issues, IMF Country Report, 288.Google Scholar

Degryse, H. and Nguyen, G. (2004), ‘Interbank Exposures: an Empirical Examination of Systemic Risk in the Belgian Interbank Market’, NBB Working Paper, 43.

Demuynck, J. (2004), Un Modèle d'Évolution des Créances Douteuses dans le Cadre du FSAP-FMI, Secrétariat Général de la Commission Bancaire – Banque de France mimeo.

,ECB (2005), ‘Indicators of Financial Distress in Mature Economies’, Financial Stability Review, June, 126–31.Google Scholar

,ECB(2006a), EU Banking Structures, October.

,ECB(2006b), ‘Country-level Macro Stress Testing Practices’, Financial Stability Review, June, 147–54.Google Scholar

,ECB(2006c), ‘Survey on EU Banks’ Large Exposures on Single-name Corporates', Financial Stability Review, June, 102–4.Google Scholar

,ECB(2006d), ‘Identifying Large and Complex Banking Groups for Financial System Stability’, Financial Stability Review, December, 131–9.Google Scholar

,ECB(2007a), ‘Identifying Large and Complex Banking Groups for Financial System Stability’,Financial Stability Review, December, 98–9.Google Scholar

,ECB(2007b), ‘Global Macro-financial Developments and Expected Corporate Sector Default Frequencies in the Euro Area’, Financial Stability Review, June, 152–8.Google Scholar

,ECB(2007c), ‘Assessing Portfolio Credit Risk in a Sample of EU Large and Complex Banking Groups’, Financial Stability Review, June, 159–65.Google Scholar

,ECB(2008), ‘Analysing the Topology of the EU Cross-border Banking Flows Network’, Financial Stability Review, June, 108–9.Google Scholar

Farinha, L. and Gaspar, V. (2007), ‘Portuguese Banks in the Euro Area Market for Daily Funds’, Bank of Portugal Economic Bulletin, 13 (1), 65–78.Google Scholar

Fonteyne, W. and Vossen, W. (2007), ‘Financial Integration and Stability’, in Decressin, J., Faruqee, H. and Fonteyne, W. (eds.), Integrating Europe's Financial Markets, International Monetary Fund, 199–237.Google Scholar

Furfine, C. (1999), ‘The Microstructure of the Federal Funds Market’, Financial Markets, Institutions and Instruments, 8, 24–44.CrossRef Google Scholar

Głogowski, A. (2006), Determinants of Polish Banks' Loan Losses – a Panel Investigation, National Bank of Poland, mimeo.Google Scholar

Goodhart, C. and Segoviano, M. (2008), ‘Banking Stability Index’, IMF Working Paper, forthcoming.

Gropp, R., Lo Duca, M. and Vesala, J. (2006), ‘Cross-border Bank Contagion in Europe’, ECB Working Paper, 662.

Halaj, G. (2007), ‘Contagion Effect in Banking System – Measures Based on Randomised Loss Scenarios’, Financial Markets and Institutions, 6, 69–80.Google Scholar

Hartmann, P., Straetmans, S. and Vries, C. (2005), ‘Banking System Stability: a Cross-Atlantic Perspective’, in Carey, M. and Stulz, R. (eds.), Risks of Financial Institutions, National Bureau of Economic Research Conference Report, University of Chicago Press, XI, 655.Google Scholar

Marcucci, J. and Quagliariello, M. (2008), ‘Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression’, Journal of International Financial Market, Institutions & Money, 18, 46–63.CrossRef Google Scholar

Martin, C. (2005), A NPL's Model for Stress-tests on the French Banking System, Secrétariat Général de la Commission Bancaire – Banque de France mimeo.

Millard, S. and Polenghi, M. (2004), ‘The Relationship Between the Overnight Interbank Unsecured Loan Market and the CHAPS Sterling System’, Bank of England Quarterly Bulletin, Spring, 42–7.Google Scholar

Mistrulli, P. (2007), ‘Interbank Lending Patterns and Financial Contagion’, Bank of Italy Working Paper, 641.

Pain, D. (2003), ‘The Provisioning Experience of the Major UK Banks: a Small Panel Investigation’, Bank of England Working Paper, 177.

Pesola, J. (2005), ‘Banking Fragility and Distress: an Econometric Study of Macroeconomic Determinants’, Bank of Finland Discussion Paper, 13.

Quagliariello, M. (2007), ‘Banks’ Riskiness over the Business Cycle: a Panel Analysis on Italian Intermediaries', Applied Financial Economics, 17 (2).CrossRef Google Scholar

Salas, V. and Saurina, J. (2002), ‘Credit Risk in Two Institutional Settings: Spanish Commercial and Saving Banks’, Journal of Financial Services Research, 22, 3.CrossRef Google Scholar

Schoenmaker, D. and Oosterloo, S. (2005), ‘Financial Supervision in an Integrating Europe: Measuring Cross-border Externalities’, International Finance, 8 (1), 1–27.CrossRef Google Scholar

Segoviano, M., Hofmann, B. and Goodhart, C. (2006), ‘Default, Credit Growth, and Asset Prices’, IMF Working Paper, 223.

Upper, C. (2007), ‘Using Counterfactual Simulations to Assess the Danger of Contagion in Interbank Markets’, BIS Working Paper, 234.

Upper, C. and Worms, A. (2004), ‘Estimating Bilateral Exposures in the German Interbank Market: Is There a Danger of Contagion?’, European Economic Review, 48 (4), 827–49.CrossRef Google Scholar

Valckx, N. (2003), What Determines Loan Loss Provisioning in the EU?ECB mimeo.Google Scholar

End, J. W., Hoeberichts, M. and Tabbae, M. (2006), ‘Modelling Scenario Analysis and Macro Stress-testing’, DNB Working Paper, 119.

Lelyveld, I. and Liedorp, F. (2006), ‘Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis’, International Journal of Central Banking, 2 (2), 99–133.Google Scholar

Wells, S. (2004), ‘Financial Interlinkages in the United Kingdom's Interbank Market and the Risk of Contagion’, Bank of England Working Paper, 230.