By reverse engineering the stress test models used in he EU Wide Stress Test 2014, we could compare the used sensitivities between countries. The were many differences but were they justified? Burkhard Heppe reports.
European Asset Quality Review and Stress Testing
The Eurosystem has conducted an unprecedented asset quality review (AQR) of the major European banks combined with a much-anticipated stress test. While some stress tests like the US SCAP of the Federal Reserve in 2009 are credited with re-establishing confidence in the banking sector, other stress tests like the one from EBA in 2011 have been less successful and may not have been sufficiently severe. We expect the 2014 AQR and stress test to be both thorough and severe, but its success will critically depend on the level of additional balance sheet disclosure provided to investors and the perceived severity and plausibility of the macro stresses applied.
On this page we follow the AQR and stress test in Europe closely.
Presentation by Jeroen Batema at the Global Credit Data on 15 December 2014. Global Credit Data – formerly know as the bank association called PECDC – is the largest international credit loss database in the world with member banks from Europe, Australia, South Africa and North America.
Today we announce a model library which answers everything a stress test modeller wanted to know about his peers but never dare to ask the supervisor.
Right after the publication of the EU wide stress test 2014 by EBA we made a free and easy analysis of the published data available through our analytical platform LoanCracker™. In the meantime we added new features, improved the user friendliness of the tool and added Approach and User Manual LoanCracker™ EU Stress Test.
Through reverse back engineering we were able to back out a library of stress test models which best mirrored all the stress test models used by the banks in EU wide stress test 2014 exercise. A limited version of the library is accessible for free together with EU Stress test results.
Here you find the Approach and User Manual LoanPilot™ EU Stress Test Model Library.
It is a wealth of information useful for benchmarking and model calibration by bank modellers and investors. With this library we were able lift a tip of the veil on hard to get private bank loss data and therefore it is particular interesting for US banks in their C-CAR exercise and for equity or low mezzanine ABS investors. We integrate the model library into our LoanPilot™ Bayesian model framework and use it for modelling the loan level data base, to rerun the entire EU stress test on homogeneous macro-sensitivities and the Bank of England stress test coming December based on their published macro-scenarios.
If you want to subscribe to the library, please fill in the form below and we will contact you.
We have created a convenient interactive analysis of the 2014 EU-wide stress test results on our LoanCracker™ platform.
It will provide you a deeper insight into the stress test results, in particular analysis of the credit risk related elements of the stress test and AQR. You can view the stress test results by bank, country of exposure, stress test scenario and asset class. We blend in additional information on risk parameters like default and loss rates, probability of default (PD) and loss given default (LGD) together with the macro economic stresses applied.
In order to get access please click and use as logon name: EU-wide and as password: 2014.
Tablet users need to install Tableau first, a free app and use this link: http://ec2-54-228-169-90.eu-west-1.compute.amazonaws.com/auth?destination=%2Fviews. The LogID and password remain the same.
In case of any questions or remarks please contact us at firstname.lastname@example.org