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Stress testing German banks in a downturn in the automobile industry
Company: Deutsche Bundesbank
Year Of Publication: 2009
Month Of Publication: February
Pages: 48
Download Count: 6
View Count: 1694
Comment Num: 0
Language: English
Who Can Read: Free
Date: 3-27-2010
Publisher: Administrator
Summary
In this paper we stress-test credit portfolios of 28 German banks based on a Mertontype
multi-factor credit risk model. The ad-hoc stress scenario is an economic downturn
in the automobile industry that constitutes an exceptional but plausible event suggested
by historical data. Rather than on a particular stress forecast, the focus of the paper
is on the main drivers of the stress impact on banks’ credit portfolios. Although the
percentage of loans in the automobile sector is relatively low for all banks in the sample,
the expected loss conditional on the stress event increases substantially by 70%–80% for the
total portfolio. This result confirms the need to account for hidden sectoral concentration
risk because the increase in expected loss is driven mainly by correlation effects with
related industry sectors. Therefore, credit risk dependencies between sectors have to be
adequately captured even if the trigger event is confined to a single sector. Finally, we
calculate
Author(s)
Erdelmeier, Martin Sign in to follow this author
Duellmann, Klaus Sign in to follow this author
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