Index
Accounting-based approach
comparison of, 3t
introduction of, 4
operational considerations of, 5, 5f, 6t, 7t
utilization of, 4, 5f
See also Balance sheet-based approach; Network analysis approach
Acharya, Viral V., 410
Actuarial liabilities
for active members, 186–87, 186nn10–11, 202
DB and, 185–89, 186nn7–10, 187n12, 187t, 188t, 189nn13–16
individual and aggregate values of, 189, 189n16
PBO and, 189
projected unit credit cost method and, 187–89, 187n12, 189nn13–16
RBO and, 189, 189n14
for retired members, 186, 186nn7–9, 187t, 188t, 201
See also Defined benefit; Retirement
Ad hoc shock method
Breaking Point method and, 47–58, 47n5, 48t, 49t, 50t, 51t, 53t, 54t
data, 46–47, 46t, 47n3, 47t
overview of, 45–46
scenarios, 47–55, 49t, 50t, 51t, 53t, 54t
summary of findings with, 52–55
Adrian, Tobias, 54, 241, 264, 264n3, 268
Advanced Internal Ratings Based approach, 60
Advisory Committee on Sovereign Wealth Funds, 250
Aikman, David, 15, 130, 231
Akaike, Hirotugu, 399, 541
Akaike information criterion, 399, 541
Albania, 155, 1561, 167t–169t
Alfonso, Gara, 124
Allen, Franklin, 124, 210
Allied Irish Banks PLC, 281, 283–84, 283n3
Altman, Edward I., 247
American International Group, 104, 253, 264, 269, 269t, 523–24, 527
Angeloni, Ignazio, 562
Anglo Irish Bank Corp. PLC, 281
Arellano, Manuel, 158, 158t, 462
Arellano-Bover System GMM estimator, 462
Asian crisis, 359–60, 562
Aspachs, Oriol, 515
Assets
balance sheet and, 97–98, 97n18, 98t, 361b
of CESE, 155, 155n9
correlation between liabilities and, 199
correlation of, 63, 63n13
DB, shocks and, 195–96, 196n20, 196t
domestic currency, 364, 364f
FX deposits and, 36n28
GOB balance sheet and, 108–9, 108nn15–16, 109nn17–18, 109t
government, 364, 364f
haircuts for, 97–98, 97n18, 98t
implied value of, 416n14
of Landsbanki Íslands hf., 73–74, 74t
management of, 380
market prices of, 97–98, 97n18
monetary authority, 364, 364f
real estate, 129
reevaluation of, 106
regression of, 537f
return, 395–97, 396t, 397n7
shock with multi-, 199
sovereign, 362–64, 362n5, 362nn8–9, 363f, 383
total, 36
See also Capital asset pricing model; Return on assets; Risk-weighted assets
Asset-weighted DD, 563
Assumptions
of BHC, 535–38, 535nn8–9, 536f, 537f, 537t
decrement, 184, 201
depreciation, 32
discount rate, 185, 185nn4–6, 201
FME, 73
GDP macroeconomic, 556t
inflation, 185, 185n3, 186, 186n8
retirement benefit, 201
salary, 185, 185n3, 201
in Stress Tester 3.0, 24n7
in stress tests, 18, 41
Atunbas, Yener, 562
Austria, 60, 136n1, 155
Austrian Central Bank, 60
Austrian Financial Market Authority, 136n1
Austrian National Bank. See Oesterreichische Nationalbank
Available stable funding (ASF)
components of, 433, 433n4
covariance of, 435f
factors, 442t
volatility of, 441b
Avesani, Renzo G., 42, 456
Babouček, Ivan, 28b
Babus, Ana, 210
Bae, Kee-Hong, 291, 301
Bagehot, Walter, 561
Balance sheet, 104
asset side of, 97–98, 97n18, 98t, 361b
BHC and expansion of, 543–46, 547f, 548f
data on, 25–26, 25b
GOB, 108–9, 108nn15–16, 109nn17–18, 109t
household, 343–46, 343f, 343nn4–5, 344nn7–8, 344t, 345f–346f 345n9, 347t
liability side of, 361b
risk-adjusted, 415, 415t
shock, 48
short-term shock and, 48
soundness of, 52
traditional, 415, 415t
See also Off-balance sheet; Sovereign balance sheet
Balance sheet-based approach
advantages and dimensions of, 13, 13n1
crisis and regulatory reforms with, 14
data considerations in, 13–14, 14n3
developments to, 15
FSAP and, 13
portfolio credit risk of, 14–15
See also Accounting-based approach; Bankistan; Stress Tester 3.0
Balance sheet-based network analysis, 243
accounting identity and, 231, 231f, 231nn4–5, 232f, 233f
credit shock and, 232, 232f
funding shock and, 232, 232f, 233f
in practice, 231f, 233–39, 235t, 236t, 237t, 238t, 239t, 240t, 241t, 329n11
TCTF and, 230–33, 231f, 231n2, 231nn4–5, 232f 233f
Baltic states, 156t, 158n12
Banco Bilbao Vizcaya Argentaria, 250, 256, 274, 528
Banco Central de Chile
data, 390–91, 392f
inclusion of, 237
Banco Central do Brasil, 108
Banco de Chile, 256
Banco de Crédito e Inversiones, 256
Banco Santander, 250, 274
Bank for International Settlements (BIS)
data, 161n20, 167t–169t, 207, 210, 210n3, 213–14, 214n11, 284
on foreign claims, 155
jurisdictions, 230
statistics, 234, 234n11
Bank holding company (BHC), 60n1, 130, 130n14
alternative scenario of, 548–51, 552t, 553t
analysis of, 531–34, 532nn2–7, 533t–534t, 534f
assumptions and methodology of, 535–38, 535nn8–9, 536f, 537f, 537t
balance sheet expansion and, 543–46, 547f, 548f
baseline scenario of, 534–48, 535nn8–9, 536f 537f, 537t, 538n10, 538t, 539t, 540f, 540n11, 541f, 541n16, 542f, 543n18, 544f, 545f, 546f, 547f, 548f, 548n19, 549t, 550f
capital adequacy of, 532, 532n7, 534f
capital shortfall and, 546–48, 548n19, 549t, 550f
CAR of, 532, 532n7, 534f
charge-off rate(s) of, 557, 558
CN of, 552t, 553t
CONS charge-off rate of, 558
CRE charge-off rate of, 557
earnings profiles and, 537f, 538–41, 539t, 540f, 540n10, 541f,
JP Morgan as, 523, 528
loan loss projections for, 557–59, 558f, 559n23, 559t
macroprudential stress test for, 523nn2–7, 532
retained earnings and, 541–43, 54ln16, 543n18, 544f, 545f, 546f,
RRE charge-off rate of, 558
securities write-downs and, 538, 538n10, 539t
Banking
CCA and other risk measures of, 388–95, 389f, 390n3, 391f, 392f, 393f, 394f, 395f,
linkage, 521n18
risk indicators, 390–95, 391f, 393f, 394f, 395f, 570n11
U.K.’s corporate and financial linkages within, 349–56, 350f, 350n10, 351f, 352f, 353f, 354f, 355b, 356f
U.K.’s household and financial linkages within, 328–49, 338f, 339f, 340f, 341f, 342f, 342n3, 343f, 343nn4–5, 344nn7–8, 344t, 345f–346f, 347n9, 347t, 348f, 349f, 350f
Banking groups, 283
CEE, 156t, 158n12, 171
largest, 313t, 316t, 317t, 320t–321t
See also Cross-border banking groups; EU banking groups
Banking sector
EL from U.K., 422–27, 423nn29–32, 424f, 425f, 426f, 427t
U.S., 440–45, 441b, 441n23–24, 442f, 442n58, 442t, 443f, 444n55, 444t
See also Brazilian banking sector
Banking stability index (BSI)
BSM and, 521, 521n18
JPoD and, 522f, 523f 525–26
Banking stability measure (BSM)
BSI and, 521, 521n18
changes in, 515
characterization of, 520–21, 521t
DD and, 515–16, 516f
estimations of, 515
JPoD and, 520
method summary on, 513
model, 384n41, 416n12
results of, 521–28, 522f, 523f, 523n20, 524f, 525f, 526f 527f
Banking Supervisory Agency. See Superintendencia de Bancos e Instituciones Financieras
Banking systems
capital losses of, 234, 236t, 241t
distress in, 521
in Germany, 20, 234, 241, 253
JPoD and stability of, 515–16, 516f
liquidity stress tests for U.S., 128, 128n5, 132
riskiest, 234, 235t
shock to, 47, 52, 53t
spillover risk of global, 305–8, 306t–307t, 308n22,308t
TCTF, 234, 237t
in U.K., 234, 240
in U.S., 234, 240, 254f, 263
vulnerable, 234, 235t
See also Chilean banking system
Banking System’s Multivariate Density (BSMD), 514
characterization of, 515–17
CIMDO and, 517–20, 517n10, 518nn11–12, 519b, 519n14
empirical results of, 521–28, 522f, 523f, 524f, 525f, 526t, 527f
measures, 520–21, 521n18, 521t
Bankistan (fictional country)
exercise, 18, 19b
input data analysis of, 24–28, 24n9, 25b, 26n10, 27f
overview and process of, 18–24, 19b, 19f, 20t, 21n2, 23nn5–6, 24nn7–8
See also National Bank of Bankistan
Bank of America, 523
Bank of England, 23, 60, 93
analysis, 350n10
Credit Conditions Survey, 342
index, 130n13
liquidity stress tests of, 125t
Bank of Ireland, 281, 283–84, 283n3
Bank of Nova Scotia, 256
Bankruptcy, 28b
Brazil and, 110n22
codes, 177
corporate, 247, 265
incidents of, 362n4
Banks
average aggregate or signage aggregate, 111n30
capital of, 231, 231nn4–5
CAR of foreign-owned and domestic, 165t
contagion risk among largest, 320t–321t
contagion risk of Irish, 281–84, 282b, 282nn1–2
DD of, 286b, 287t, 316t
distress and fragility of, 28b
distress between, 521, 521t
EU, 286b, 324t, 328t–329t
fire sales and rollover of, 97–98, 97n18, 98t
foreign, 25
French, 274, 286b
German, 286b, 455n5
GOB default of, 112–15, 112n33, 113t, 114t, 115n34, 115t, 116t
Italian, 286b
Latin American, 4, 521, 528
macroeconomic factors and, 334
model of, 566
multiple aggregate, 117–20, 117n36, 118t, 119t, 120t
of Netherlands, 125t, 286b, 500n28
no GOB default of, 112, 112nn32–33, 113t
ownership stake of, 161
panics associated with, 124
parent, 154–55, 154t, 155t, 156t, 160, 160n14, 161, 167t–169t
PoD of, 515, 522
portfolio of, 8, 104–6, 105nn4–7
profits and, 22–23
rating downgrades of, 97
ratings and risk of Brazil’s, 103, 115–21, 117nn35–36, 118t, 119t, 120t
ratings and risk of GOB, 103, 115–21, 117nn35–36, 118t, 119t, 120t
regulators of, 152n4
risk simulation model of, 106–8, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t
safety of, 36
shock to, 47, 52, 53t, 55
short-term counterbalancing approach or run on, 95, 97
simulation results of GOB, 112–20, 112nn31–33, 113t, 114t, 115n34, 115t, 116t, 117t, 118t, 119t, 120t
single aggregate, 117, 117n35
soundness of, 55
sovereign risk and, 334
Spanish, 230, 274, 284, 286
systemic risk within, 111–12, 111n30, 116–21, 117nn35–36, 118t, 119t, 120t
U.K., 286b
U.S., 230, 286b
write-downs of, 263–64
Bankscope, 93n13, 109
Bank-to-bank
changes in NPLs, 28b, 29, 29n12
data, 28b
exposures, 26
interest rate spread, 108n12
Barclays, 181t, 423n30, 527
Barnhill, Theodore, 15, 94, 104, 108, 110, 112n31, 128
Basel Committee on Banking Supervision (BCBS), 14n3
on liquidity risk, 71n2, 86–87
principles and proposals of, 94, 272
standardized approach of, 97, 97n18
Basel II, 14
framework, 64n19
IRB approach, 160n18, 177
Basel III, 14, 432
framework of, 93
impact of, 64, 64n20
proposals, 129n11
ratios, 97–98, 97t
on regulatory capital, 264
standards, 423n32
Bassett, Gilbert, Jr., 268
Bayesian information, 541
Bear Stearns
failure of, 104, 130n13, 240
rescue of, 441
Bech, Morten, 243
Belarus, 155, 156t, 158n12, 159t, 167t–169t
Belgium, 155, 234
Belmont, David, 404
Bernoulli
distributions, 137, 145, 145t
events and probabilities, 144, 145t
Binomial logit model, 303–4, 303f, 303nn8–9, 304nn10–11
Black, Fischer, 4, 247, 271, 286b, 302, 333, 388, 563b
Black-Scholes-Merton model (BSoM), 366n19
CCA and, 383–85, 383n38, 384nn40–42, 385n43, 389–90, 404, 413, 413n8, 414, 433
DD and, 286, 286b
traditional, 435
Blaschke, Winfrid, 18
Bloomberg, 534, 564
BNP, 528
Board of Governors of the Federal Reserve System, 93, 93n7, 128, 160, 177, 411n5, 558–59, 559f
Bohn, Jeffrey R., 271
Bond, Stephen, 158, 158t
Borio, Claudio, 239, 240, 264, 264n3, 267–68
Bosnia, 155, 156t, 159, 167t–169t
Boss, Michael, 32
Bottom-up (BU)
approach to macroeconomic model, 19f, 21–22
liquidity stress tests, 94, 95t
Brazil
aggregation bias portfolio of, 464–66, 465n15, 468f; 469f, 469t, 470t
bank ratings and risk of, 103, 115–21, 117nn35–36, 118t, 119t, 120t
bankruptcy and, 110n22
credit operations in, 457n10
credit risk of, 453–54, 454n1
elections in, 393, 394–95
equity market index of, 105, 105n5
GDP of, 454, 463
See also Government of Brazil
Brazilian banking sector, 230, 471
characterization of, 453–54, 454nn1–3
credit VaR and, 466–70, 470t, 471t
LGD of, 468
loan portfolio of, 460t
macro model of, 456–57, 456f, 456nn7–8, 457nn9–11, 457t, 458t, 459f
methodology, 455–63, 456f, 456nn7–8, 457nn9–11, 457t, 458n12, 458t, 459f, 460t, 461nn13–14, 462f, 463t, 464t–465t
method summary on, 453
microeconomic model of, 457–63, 457nn10–11, 458n12, 460t, 461nn13–14, 462f, 463t, 464t–465t
NPLs and, 454, 454n1, 458–63, 461nn13–14, 461t, 462f, 463–64, 467f
portfolio aggregation bias of, 464–66, 465n15, 468f, 469f 469t, 470t
review of, 454–55, 455nn5–6
stress tests and, 463–70, 465n15, 467f, 468f, 469f 469t, 470t, 471t
Brazilian real, 398f, 399, 456
Breaking Point method
ad hoc shock method and, 47–58, 47n5, 48t, 49t, 50t, 51t, 53t, 54t
compromise, 55, 56t, 57t
data, 46–47, 46t, 47n3, 47t
method, 45
overview of, 45–46
scenarios, 47–55, 49t, 50t, 51t, 53t, 54t, 56t, 57t
summary of findings with, 52–55
Breeden, Douglas T., 416, 434
Breusch, Trevor S., 541
Breusch-Godfrey serial correlation Lagrange multiplier test, 541
Breusch-Pagan Lagrange multiplier test, 541
Brownlees, Christian T., 410
Brunnermeier, Markus K., 239–41, 254, 264, 264n3, 268
Buiter, Willem, 74–76
Bulgaria, 155, 156t, 159, 167t–169t
Call options, 247
Call Report Data, 128, 128n5
Canada, 250
Capital
accounting information on, 45
adequacy of BHC, 532, 532n7, 534f
of banks, 231, 231nn4–5
controls in Russia, 365
CoVaR measures, 264n2
excess, 160t, 161
impairment, 217t
losses of banking systems, 234, 236t, 241t
management, 152
as measure of impact, 22
ratios, 110–11, 111n24
requirements, 163
total, 24n8
See also Economic capital; Regulatory capital
Capital adequacy ratio (CAR), 20, 22, 23–24, 24nn7–8
assessment of, 404, 404n10
of BHC, 532, 532n7, 534f
calculations of, 47
CEE and CESE regulatory minimum of, 160, 160n17, 179t
by country and bank type, 165t
of foreign-owned and domestic banks, 165t
of Landsbanki Íslands hf., 73
of NPLs, 480–81, 481t postshock, 153n8
requirements, 46t, 47
sample subsidiaries, 165t
stress tests on, 37, 37f
terms of, 34
Capital asset pricing model, 103, 271
Capital charge
calculations, 268–72, 268n7, 269f, 269nn8–9, 270f, 271nn12–15
interconnectedness and, 263–64, 267
risk, 267–68, 268n6
TCTF and, 263, 264n3, 265–68, 266f, 268n6
Capital injection, 20, 22
Capitalization
CESE levels of, 152
of firms, 416n16
measurement of, 22, 61
ratios, 91
underestimation of, 52
Capital need (CN)
of BHC, 552t, 553t
of CESE, 154, 154n8, 155f, 181t
ring-fencing scenarios and, 160–63, 160n15, 160nn17–19, 161n20, 162f, 163f
Capital shortfall
BHC and, 546–48, 548n19, 549t, 550f
EL and, 422, 422n28
macroprudential stress test and, 546–48, 548n19, 549t, 550f
Carr, Peter, 422
Cash
flow analysis, 199
flow-based liquidity tests, 92
flow-type methods, 92
CBOE VIX, 566n2
Central, Eastern, and Southern Europe (CESE)
assets of, 155, 155n9
branches and, 153, 153n7
capitalization levels of, 152
CAR regulatory minimum for, 160, 160n17, 179t
credit shock, 151, 156–60, 158n12, 158t, 159t, 160n14
description of, 154–56, 154f 154n8, 155f, 156t, 157f
implications of, 151–54, 152n4, 152nn1–2, 153 nn5–7
LGD and, 160, 177, 177t, 181t
NPLs and, 156–60, 158n12, 158t, 159t, 160n14
regional shock of, 156–60
ROAs and, 156–60, 158n12, 158t, 159t, 160n14
Central and Eastern Europe (CEE)
banking groups, 156t, 158n12, 171
regulatory minimum CAR for, 160, 160n17, 179t
Central bank
funding by, 93, 238
support, 92n5
Central Bank of Brazil, 454n2
Central Bank of Chile. See Banco Central de Chile
Central Limit Theorem, 488n12
Cerruti, Eugenio, 153n7
Chan-Lau, Jorge, 207, 231, 239–41, 248, 254, 268, 301
Chapman, James, 243
Chicago Board Options Exchange Market Volatility Index (VIX), 255
CCA and, 395, 396t, 397–400, 397t, 402, 405n12, 456n8
spreads, 456n8
Chile
economy of, 249
GDP of, 250, 250t
during global financial crisis, 249–55, 251f, 252n2, 252n4, 252t, 253t, 254f, 255n11, 402–2, 403f
Spain and, 250
Chilean banking system
CCA of, 387–88
EDF, 252–54, 252nn6–7, 253n8, 253t, 254t
exposures of, 230, 233, 249–55, 251f, 252n2, 252n4, 252t, 253t, 254f 255n11
foreign bank exposure of, 250, 250t, 251t
funding risks of, 234
IBB and, 250, 250t
results of, 255–60, 256n2, 257t, 258t, 259t, 260n
TCTF analysis of, 237–39, 238t, 239t, 240f, 241t
U.K. and, 250
See also Contingent claims analysis; CoRisk
Čihák, Martin, 18, 34n26, 45, 60n1, 93–94, 99, 481, 562
Citibank, 256, 523
Citigroup, 104, 272n16, 273–74, 528
Comisión Nacional Bancaria y de Valores (Mexico), 487n6
Commercial and industrial loans, 555
charge-off rate of, 558
losses, 535, 537t
Commercial real estate (CRE), 338, 352–54
charge-off rate, 557
debt, 555
losses, 535–36, 537t, 551, 552t
prices, 556
Committee of European Banking Supervisors, 93
Committee on Payment and Settlement Systems-International Organization of Securities Commissions, 8
Committee on the Global Financial System, 410n1
Commonwealth of Independent States, 155, 156t, 158n12, 159t
Conditional probability of default (CoPoD)
characterization of, 485–87, 500t, 506–7
efficiency, 492b–493b
explanatory variables of, 490–93, 493n23, 494t
formulation of, 491b–492b
intuition, 489
methodology of, 489–94, 490nn16–18, 491b–492b, 492b–493b, 494t
method summary on, 485
PMD and, 502–4, 503f, 504t
rationale of, 491b–492b
stress test procedure for, 496–97
See also Denmark
Conditional tail expectation, 413
Conditional Value at Risk (CoVaR)
based capital measures, 264n2
model, 412t
Congressional Oversight Panel, 536
Consistent Information Multivariate Density Optimizing (CIMDO)
BSMD and, 517–20, 517n10, 518nn11–12, 519b, 519n14
characterization of, 485–87, 486nn3–5, 500t, 506–7
copula, 514n4, 517n10, 518–20, 518nn11–12, 519b, 519n14
density specification, 489, 494, 495b, intuition, 494, 495b–496b
methodology of, 493–94, 495b–496b
method summary on, 485
PMD and, 502–4, 503f, 504t
stress test procedure for, 496–97
See also Denmark
Consolidated Financial Statements (Landsbanki Íslands hf.), 73
Constant dollar method, 189n15
Consumer price index, 395
Contagion risk, 33, 33n24
determinants and Ireland, 287t, 291–98, 292n9, 292t, 293n10, 293t, 294f, 295t, 296f, 296t
among EU banking groups, 326t–327t
among EU banks, 328t–329t
in Ireland, 281–84, 282b, 282nn1–2
of Irish banks, 281–84, 282b, 282nn1–2
among largest banks, 320t–321t
“macro” interbank, 35, 35f, 35n27
method summary on, 281
of Netherlands, 283
“pure” interbank, 34–35, 34nn25–26
sources of, 282b
of U.K., 283–84
of U.S., 283–84
Contingent claims analysis (CCA), 4, 381
application of, 360, 361n4
BSoM and, 383–85, 383n38, 384nn40–42, 385n43, 389–90, 404, 413, 413n8, 414, 433
of Chilean banking system, 387–88
of corporate and financial institutions, 333–34, 350f, 353–56, 355b, 356f, 357f
of DtD, 389f, 392–93, 393f
extensions of, 334–35
implicit options of, 384–85, 385t
introduction to, 333–35, 333n1
method summary on, 387
research on, 404–5, 404n10, 405n12
risk measures of, 388–95, 389f, 390n3, 391f, 392f, 393f, 394f, 395f
RNDP and, 393, 393f, 394f, 395
scenario testing of, 402–4, 402f, 403f
of sovereign balance sheet, 364–66, 364f, 364nn10–11, 365n12, 365nn16–18
sovereign risk with, 359–61, 360n1
tools, 387–88
U.K. and, 333–34, 337–38, 350f, 353–56, 355b, 356f, 357f
VAR and, 388, 399–400
VIX and, 395, 396t, 397–400, 397t, 402, 405n12, 456n8
See also Sovereign risk; Systemic CCA
Copula Choice Problem, 518
CoRisk
analysis, 249, 264
EDF, 255
estimation, 254–53, 255n11
between financial institutions, 257t, 258t, 259t
measures, 252, 252n2
method summary on, 249
model, 279, 412t
network analysis, 270–72, 270f, 271nn12–15
quantile regression and, 254–53, 255n11, 268n7
spreads, 269, 269f
See also Chile; Chilean banking system
Corporate bankruptcy, 247, 265
Corporate debt, 384n40
Corporate default, 361b
Corporate leverage, 32, 32n23
Corporate loan portfolio, 128, 128n9
Cossin, Didier, 407
Cost method
benefit allocation and, 188–89, 189n13
cost allocation and, 188
projected unit credit, 187–89, 187n12, 189nn13–16
Coval, Joshua, 130
Cox, John C., 407
Credit
availability, 342n3
categories, 455
cost method projected unit and, 187–89, 187n12, 189nn13–16
domestic, 567n4
GDP and, 564–66, 567, 568t–569t
growth, 550f, 562, 572, 577
operations in Brazil, 457n10
private sector, 567n4
rating, 110, 110n21, 256
shock, 28b, 29, 29n12
VaR, 135, 146–47, 146f, 147f,
VaR models, 42, 377n32
Credit Agricole, 274
Credit default swap (CDS), 252, 279, 564
divergent, 421n24
lower, 367–70, 368f–369f, 369n24, 370t, 371f
market prices for, 268
MIDP and, 372, 372n27
RNDP and, 422, 422n27
spreads, 252n7
See also Fair value CDS; PoDs derived from CDS spreads
Credit Metrics, 488n9
Credit over GDP, 500
Credit-plus-funding shock
impact of, 212, 212f, 212n6, 227t–228t
transmission of, 211–12, 211n5, 212f, 212n6, 216–18, 220t, 221t
Credit risk, 450
of Brazil, 453–54, 454n1
econometric model, 475–78, 476nn2–4, 477n5, 477n7, 477nn9–10, 478nn11–12
GOB model of, 106–12, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t, 110nn20–23, 110t, 111nn24–30
macroeconomic model of, 28b
method summary on, 103–4
model of loans, 128–29, 128n9
private sector, 103–4
RWA for, 63
solvency stress tests and, 62
Credit risk indicators
DtD and, 360, 375, 375n30
inclusion of, 404–5
Credit-risk-macro nexus, 42
CreditRisk+ model, 15, 28–30, 28b, 28n11, 29n12
alternative recursive scheme of, 142–43
basic, 136–37, 136n4
default events and, 136
development of, 135–36
exposure bands and, 137
extensions of, 135, 140–41
factors of, 139–40
implementation and review of, 135–36, 142–43, 142n8
with known probability, 138
loan, 128–29, 128n9
losses and, 136
method summary on, 135
with nonrandom default probability, 137
normalized exposures and, 136, 136n4
Poisson approximation and, 137–38
with random default probability, 138–39, 139n6, 146–47, 146f, 147f
summary, 141–42
toolbox, 143–47, 144t, 145f, 145t, 146f, 147f
Credit risk transfer, 283
Credit shock
balance sheet-based network analysis and, 232,232f
CESE, 151, 156–60, 158n12, 158t, 159t, 160n14
concentration risk and, 30
impact of, 41, 227t–228t
increase in NPLs and, 28b, 29, 29n12
sectoral shocks and, 29–30
simulations of, 211–12, 211f, 211n4, 212f, 212n6
transmission of, 210f, 215t, 216f, 215–19, 217t, 217n7, 218f, 219f
underprovisioning adjustment and, 28–29, 28n11
Credit spreads
CDS and risk-neutral, 370, 370n25, 372t
EMBI+ and risk-neutral, 370–74, 372nn26–28, 372t, 373t, 374f
Credit Suisse, 525
Credit Suisse Financial Products (CSFP), 15, 136
implementation of, 145
loss distribution for, 145, 145t
Croatia, 152n4, 155, 167t–169t
Croatian National Bank, 152n4
Cross-border banking groups, 527–28
description of, 154–56, 154f, 154n8, 155f 156t, 157f
EU loans and, 153, 153nn6–7
internalization of, 300n1
loans of, 155n10
and subsidiaries, 167t–169t
Cross-border financial surveillance, 527–28
interbank exposure model and, 211–15, 211f, 211nn4–5, 212f, 212n6, 214f, 214n11
method summary on, 205
perimeter of prudential regulation and, 223
requirements of, 209–11, 210f, 210nn1–3
simulation results of, 215–23, 215t, 215n12, 216f, 217t, 218f, 219f, 220t, 221t, 222f, 223f, 224f
Crouhy, Michel, 406
Czech Republic, 155, 156t, 167t–169t
Danish kroner, 500
Danmarks Nationalbank, 500
Data
ad hoc shock method, 46–47, 46t, 47n3, 47t
balance sheet, 25–26, 25b
bank-to-bank, 28b
BCCH, 390–91, 392f
BIS, 161n20, 167t–169t, 207, 210, 210n3, 213–14, 214n11, 284
Breaking Point method, 46–47, 46t, 47n3, 47t
considerations in balance sheet-based approach, 13–14, 14n3
DD, 286b
on Denmark, 500, 500nn26–29, 500t
EDF, 252–54, 252nn6–7, 253n8, 253t, 254t
EVT, 303n13, 304–5, 304n14, 304n17
financial sector risk, 562–64, 563b, 563f, 576t
on France, 155, 576t
GFSR, 157, 557
IBB, 213–14, 213n10, 214f, 227, 227t–228t
income statement, 25–26, 25b
input analysis of Bankistan, 24–28, 24n9, 25b, 26n10, 27f
intensive, 40–41
on Italy, 155, 576t liquidity stress tests, 126–28, 127f
macroeconomic, 513–14
market, 570n11
MKMV, 247–48, 252, 252t, 264, 268
NPLs, 475
risk transfer, 213–14, 214f
stress tests and actual, 18
summary, 576t
time to repricing, 26
URB, 213–14, 213n10, 214f, 227, 227t–228t
Datastream, 564
Datastream banking sector index, 563
Debt
corporate, 384n40
CRE, 555
foreign currency, 362n8, 365
of GOB, 105, 105nn6–7
management, 378, 379f
maturity of, 93
sustainability of, 380–81, 380n37
U.K.’s unsecured, 349, 350f
U.S., 555n20
Debt at risk
method summary on, 337
U.K. and,337–38,344
U.K.’s unsecured, 349, 350f
See also Contingent claims analysis
Debt service-to-income, 344, 344nn7–8, 345f–346f
Default
banks with GOB, 112–15, 112n33, 113t, 114t, 115n34, 115t, 116t
banks with no GOB, 112, 112nn32–33, 113t
corporate, 361b
events and CreditRisk+ model, 136
of GOB, 105, 105nn6–7
incidents of, 362n4
interbank risk and GOB model of, 103, 106–12, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t, 110nn20–23, 110t, 111nn24–30
JPoD and, 414
private sector, 103–4
region of, 489
sovereign, 103–6, 361b
See also Conditional probability of default; Loss given default; Probability of default; Risk-neutral default probability
Default-free value, 365
Default risk
EL from, 416–18, 416nn12–16, 417nn17–20, 418n21
to macroeconomic variables, 395–404, 395f, 395nn5–6, 396t, 397n7, 397t, 398f, 401f, 402f, 403f
Deferred tax assets, 542–43, 544f
Defined benefit (DB)
actuarial cost factors and functions of, 184–85, 184n2, 185nn3–6
actuarial liabilities and, 185–89, 186nn7–10, 187n12, 187t, 188t, 189nn13–16
asset shock and, 195–96, 196n20, 196t
decrement assumptions and, 184, 201
discount rate assumptions and, 185, 185nn4–6, 201
funding ratio of, 183
liability shock and, 196, 196n21
mechanics of, 183–84
method summary on, 183
model pension plan and, 190, 191t–192t, 193f–194f, 195t
real pension plan and, 190, 191t–192t, 193f–194f, 195t
refinements to, 199
retirement benefit assumptions and, 201
salary assumptions and, 185, 185n3, 201
simplifications of, 192–95, 195nn18–19
stress tests for, 190–99, 191t–192t, 193f–194f, 195nn18–19, 195t, 196nn20–21, 196t, 197n30, 197t, 198f, 198t
survival probability of, 184–85, 184n2
See also Actuarial liabilities; Retirement
De Hass, Ralph, 152
Dell’Ariccia, Giovanni, 153n7
De Nederlandsche Bank, 125t, 500n28
De Nicoló, Gianni, 282, 286b
Denmark
analysis of, 499t, 504–7, 504t, 505t, 506t
data on, 500, 500nn26–29, 500t
economy of, 497, 498f, 499f
EL of, 503, 504t, 505t
empirical implementation in, 494t, 497–504, 498f, 499f, 499t, 500nn26–29, 500t, 501f, 501t, 502t, 503f, 503t, 504t
implementation data of, 500, 500nn26–29, 500t
macroeconomic scenarios in, 494t, 497–500, 498f, 499f, 499t
PD in, 494t, 500–502, 501f, 501t, 502f, 503t
PMD of, 502–3, 503f, 504t
result analysis in, 499t, 504–6, 504t, 505t, 506t
Deposits, 72n6
FX, 36n28
insurance, 230, 264
run on, 87
Depreciation
assumptions, 32
direct, 32
FX and rate of, 32
Deutsche Bank, 14n3, 181t, 528
Deutscher Aktien IndeX (DAX), 564, 566n2
Development Bank of Singapore, 528
de Vries, Caspar G., 301
Diamond, Douglas, 124
Diebold-Yilmaz spillover, 279
Distance to default (DD), 23, 23n6, 248, 577
of banks, 286b, 287t, 316t
BSM and, 515–16, 516f
BSoM model and, 286, 286b
data issues of, 286b
decreases in, 567n6
financial sector risk and, 563, 563b
indicators, 286–91, 286b, 287f, 288f, 288t, 289f, 290f, 290t, 301n5
as measurement, 282, 282b
model, 302–3, 302n6
usage of, 252, 252n4
Distance to distress (DtD)
CCA of, 389f, 392–93, 393f
CRIs and, 360, 375, 375n30
inversion of, 367n22
sovereign credit risk and, 366–70, 368f–369f, 369n24, 370t
Distress
bank fragility and, 28b
in banking system, 521
between banks, 521, 521t
dependence matrix, 523–24, 526–27, 526t
and fragility of banks, 28b
of NBFIs, 514
See also Joint probability of distress; Probability of distress
Distress barrier, 363f, 365t
constitution of, 362
fixed, 364n10
Distress Dependence Matrix, 521, 521t
Djankov, Simeon, 63, 177
Doing Business, 63
Domestic currency, 364n10
foreign currency and, 364, 364f
of Iceland, 73
Domestic exchange, 36n28
Donne, John, 260
Dow Jones Stoxx 600 stock index, 564
Drehmann, Mathias, 28b
Duffie, Darrell, 130
Durbin, James, 541
Durbin-Watson d-statistic, 541
Dutch Central Bank, 93
Dybvig, Philip, 124
Dynamic conditional correlation, 410
Dynamic factor model, 436, 436n12
Econometric credit risk model, 475–78, 476nn2–4, 477n5, 477n7, 477nn9–10
Economic capital (EC), 486, 487–89, 487n8, 488f, 488nn9–13
Ehrmann, Michael, 562
Elsinger, Helmut, 34n26, 231, 243
Embree, Lana, 243
Emerging Market Bond Index (EMBI+), 456n8
JP Morgan, 371f
risk-neutral credit spreads and, 370–74, 372nn26–28, 372t, 373t, 374f
spreads, 367–70, 369n24, 370t
Emerging Market Bond Index Global, 369n24
Engle, Robert F., 410
Entropy
maximum, 489
modeling foundations, 509–11, 509n33, 511n34
See also Minimum cross-entropy distributor
Equity
indicators, 4
market index of Brazil, 105, 105n5
prices, 247, 283
pricing model, 248
S&P sector returns of, 128
Equity indicators-based approach, 247
See also Chile; Too-connected-to-fail
Erndos-Renyi graphs, 243
Erste, 528
Espinosa-Vega, Marco, 205
Estimated default probability, 384
Estonia, 155, 156t, 167t–169t, 171
EU banking groups, 97, 97n16, 283n3
contagion risk among, 326t–327t
cross-border loans of, 153, 153nn6–7
and subsidiaries, 167t–169t
See also Central, Eastern, and Southern Europe; Central and Eastern Europe
Europe, 528
central, 156t
interest rates in, 500
southern, 156t
stress tests in, 8, 14
See also Central, Eastern, and Southern Europe; Central and Eastern Europe; Southeastern Europe
European Banking Authority, 14, 14n3
European Central Bank (ECB)
solvency stress tests and, 60, 60n3, 97
statistics, 234
European Economic Area, 284n4
European Union (EU)
banks, 286b, 324t
contagion risk among banks in, 328t–329t cross-border banking groups and loans of, 153, 153nn6–7
financial institutions, 257t, 258t, 259t
GDP of, 457n9
government bond yields, 325t
home bias within, 309
initiatives at, 152n2
spillover risk within, 308–9, 308t, 309n26
stock market indices, 325t
Ex ante
loss distribution, 266
portfolio, 268n6
Expected default frequency (EDF), 561, 570, 577
of Chilean banking system, 252–54, 252nn6–7, 253n8, 253t, 254t
concept of, 413, 413n7
conditional, 255
CoRisk, 255
data, 252–54, 252nn6–7, 253n8, 253t, 254t
five-year, 252–54, 252n7
measures, 252, 252n4, 252t
MKMV, 562, 562n1, 563b, 563f, 564f
Expected loss (EL), 365
capital shortfall and, 422, 422n28
from default risk, 416–18, 416nn12–16, 417nn17–20, 418n21
of Denmark, 503, 504t, 505t
individual, 416–18, 417nn17–19
joint, 417–18, 417n20, 418n21
from U.K. banking sector, 422–27, 423nn29–32, 424f, 425f, 426f, 427t
Expected loss ratio (EL ratio), 418–20, 419f
Expected shortfall (ES), 266, 439n20
Ex post
loss distribution, 266
portfolio, 268n6
Extreme value theory (EVT)
approach, 4, 310
binomial logit model and, 303–4, 303f, 303nn8–9, 304nn10–11
data, 303n13, 304–5, 304n14, 304n17
empirical method of, 301–5, 301nn4–5, 302n6, 303f, 303nn8–9, 304n14, 304n17, 304nn10–13
introduction to, 279–80, 299–301, 300f, 300nn1–2, 301n3
method summary on, 249
models, 280
Fair value CDS, 421n24
Fair value option adjusted spread, 421n24
Fannie Mae, 104
Fast Fourier transform, 137, 143
Fazylov, Otabek, 562
Federal Deposit Insurance Corporation, 128, 129n11
Federal Reserve of New York, 264
Financial Accounting Standard, 535
Financial and Economic Environment Model, 128
Financial crisis, global (2007–2008), 1
characterization of, 124, 263
Chile during, 249–55, 251f, 252n2, 252n4, 252t, 253t, 254f, 255n11, 402–2, 403f
financial institutions during, 104, 104n1, 123
method summary on, 247
principle, 93
solvency and, 72, 72n4
U.K. during, 338–40, 338f, 339f, 340f, 341f
Financial institutions, 1, 266
Canadian, 257t, 258t
CCA of, 333–34, 350f, 353–56, 355b, 356f, 357f
CoRisk between, 257t, 258t, 259t
EU, 257t, 258t
failure of, 123
during financial crisis (2007–2008), 104, 104n1, 123
global, 253t, 272n16, 272t, 273t
in Latin America, 249, 253, 253t, 257t, 258t, 259t
loan portfolio of, 104–6, 105nn4–7
portfolio of, 104
total assets of, 533t–534t
U.S., 257t, 258t, 272n16, 272t
See also Nonbank financial institutions
Financial market infrastructures, 5, 8
Financial Sector Assessment Program (FSAP), U.S., 1, 449, 531, 570
adverse scenario of, 555, 556t
alternative scenario of, 555–56
application of, 92, 92n2
balance sheet-based approach and, 13
baseline scenario of, 555
coverage of, 24–25, 24n9
insurance sector and, 8
missions, 18
practice of, 25, 555n20
single-factor shock and, 556
soundness and structure of, 26–28, 26n10
Financial sector risk
bank regressions as, 570–72, 571t
cointegrating relationships and, 577, 578t
data, 562–64, 563b, 563f, 576t
DD and, 563, 563b
impact of, 561–62, 572–73
macroeconomic regression as, 566–70, 567nn4–7, 568t–569t
methodology, 564–66, 565f
method summary on, 561
Financial soundness indicator (FSI)
core, 32
solvency stress tests and, 66
Financial Soundness Indicators Compilation Guide, 30, 30n14, 31
Financial Stability Board, 208, 230
Financial Stability Report, 25
Financial Supervisory Authority. See Fjármálaeftirlitsins
Finland, 72n6
FinSoft, Inc., 104, 104n3, 124n1
FitchRatings, 105, 107t, 112, 116, 120, 289
Fjármálaeftirlitsins (FME), 72
Landsbanki Íslands hf. stress tests with, 76–79, 77t–78t
scenario assumptions of, 73
stress test combination of, 79, 79n16, 80t
Foglia, Antonella, 60
Forbes, Kristin, 301
Foreign banks, 25
CAR of domestic and, 165t
Chile’s exposure to, 250, 250t, 251t
claims of, 250, 250t
risk of, 527–28
Foreign currency
debt, 362n8, 365
domestic currency and, 364, 364f
of Iceland, 73
liabilities, 365n18, 366–67
risky, 365
Foreign exchange (FX)
assets and deposits, 36n28
depreciation in rate of, 32
direct risk in, 31–32, 31nn18–19, 32nn21–22
indirect risk in, 32–33, 32nn22–23
rate, 106, 502
risk, 196, 196t
Foundation Internal Ratings Based approach, 60
France
banks of, 274, 286b
data on, 155, 576t
Freddie Mac, 104
Friedman, Paul, 240, 240n13
Funding
by central bank, 93
costs, 98–99
gap of Landsbanki Íslands hf., 83, 84t–85t
liquidity, 71, 92
market, 98–99, 99n19
ratio of DB, 183
risks of Chilean banking system, 234
runoff rates with sources of, 97, 97n16
stable, 433
standards, 185n4
wholesale, 249, 282b
See also Net stable funding ratio; Required stable funding
Funding shock
balance sheet-based network analysis and, 232, 232f, 233f
impact of, 227t–228t
See also Credit-plus-funding shock
Furfine, Craig, 231
Gai, Prasanna, 243
Galai, Dan, 406
Gale, Douglas, 124
Gârleanu, Nicolae, 130
Garratt, Rod, 243
Gauthier, Celine, 240, 264, 267–68
Generalized autoregressive conditional heteroskedasticity, 252n2, 391–92, 392f
Generalized extreme value, 413–14, 414n9
Generalized method of moments (GMM)
Arellano-Bover System, 462, 477, 477nn9–10
Difference, 477, 477n7
Generally Accepted Accounting Principles, 13n1
German VDAX, 566n2
Germany, 99, 155, 486n6, 576t
banking systems in, 20, 234, 241, 253
banks of, 286b, 455n5
Gibbs sampler package WinBUGS, 557
Giese, Gotz, 140, 142
Glitnir Banki hf.
background on, 72
in receivership, 72–73, 72n6
Global Financial Stability Report (GFSR)
analyses of, 1, 93–94, 94n9, 410, 532
conclusions of, 124
data, 157, 557
Global Insight, 564
Godfrey, Leslie G., 541
Goldman Sachs, 181t, 272n16, 523
Gomez, G., 395
Goodhart, Charles A. E., 515, 528
Gordy, Michael, 63, 142n8
Gorton, Gary, 124
Government
assets, 364, 364f
guarantees/support of, 334–35
liabilities, 364, 364f
Government bond
EU, 325t
yields, 314t, 325t
Government of Brazil (GOB)
balance sheet, 108–9, 108nn15–16, 109nn17–18, 109t
bank simulation results, 112–20, 112nn31–33, 113t, 114t, 115n34, 115t, 116t, 117t, 118t, 119t, 120t
debt and default of, 105, 105nn6–7
expenses of, 109, 109nn17–18, 109t
integrated model of, 106–12, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t, 110 nn20–23, 110t, 111nn24–30
Gram-Charlier expansion, 415
Granger causality, 411n5
Graph theory, 243
Great Depression, 263
Great Recession, 567
Greece, 155
Gropp, Reint, 248, 279, 282–83, 286b, 291, 300–301
Gross Domestic Product (GDP)
of Brazil, 454, 463
of Chile, 250, 250t
contraction in, 456
credit and, 564–66, 567, 568t–569t
of EU, 457n9
evolution of, 464, 467f, 474f
financial regression on, 567n7
growth of, 158, 474f, 535, 577
macroeconomic assumptions on, 556t
real, 557
of U.S., 457n9
variables of, 20
See also Credit over GDP
G20
Data Gaps Project of, 8
report, 410n1
spending, 264
Haaf, Hermann, 142
Haldane, Andrew G., 411, 411n4
Hall, Peter, 417, 438
Hardy, Daniel, 60, 62, 63
Hartmann, Philipp, 301
Hasan, Maher, 62, 63–64, 67, 95
Hattori, Masazumi, 243
Hausman, Jerry A., 541
Hausman specification, 541
Haver economic database, 395n5
Herfindahl-Hirschman Index (HHI), 63–64, 63n14
Heřmánek, Jaroslav, 34n26
Herstatt Bank, 230, 264, 274
Herzegovina, 155, 159, 167t–169t
Hesse, Heiko, 96, 99
Hilbers, Paul, 18, 24, 39b
Hlaváček, Michal, 34n26
Hoelscher, David, 153
Hofmann, Boris, 515
Hongkong and Shanghai Banking Corporation (HSBC), 423n30, 524, 528
Hong Kong Monetary Authority, 93, 125t
Hong Kong SAR, 28b
House
prices, 341, 341n1, 559, 559n30, 559t
price shock, 347–49, 349f
Huang, Xin, 410, 521n18
Hui, Cho-Hoi, 101, 130n13
Hull, John C., 107–8, 108n13
Hungary, 155, 156t, 167t–169t
Iceland, 14
Althing (parliament) of, 72
banking crisis background of, 72–73, 72n4, 72n6
case study, 72–87, 72n4, 72n6, 73nn10–12, 74nn14–15, 74t, 75t, 76t, 77t–78t, 79nn16–17, 80t, 81t–82t, 84t–85t, 86n18, 86t
domestic and foreign currency of, 73
See also Fjármálaeftirlitsins; Glitnir Banki hf.; Landsbanki Íslands hf.; Seðlabanki
Icesave retail deposit product, 72n6
Imai, Kenji, 404, 407
“IMF Exploring Insurance Levy on Banks,” 264n2
IMF Monetary and Capital Markets Department Distance-to-Default Database, 286
Immediate borrower basis (IBB)
Chilean banking system and, 250, 250t
data, 213–14, 213n10, 214f, 227, 227t–228t
for international claims, 213n10
simulations, 213
Impavido, Gregorio, 186n10, 189n13
Impulse response function (IRF), 388, 400–402, 401f
Income
GOB balance sheet and, 108–9, 108nn15–16, 109nn17–18, 109t
GOB’s net noninterest, 109, 109nn17–18, 109t
groups, 343n5
interest, 23
shock, 346f, 347
shock in rate of, 345f–346f, 347
solvency stress tests and, 61–62, 62nn6–7, 62t
statement, 25–26, 25b
See also Debt service-to-income
Incremental portfolio
approach and TCTF, 265–67, 266f
institutional, 266
Indicador Mensual de Actividad Económica (IMACEC), 395–97, 396t, 399
Indice de Precios Selectivo de Acciones (IPSA), 395–97, 396t
Inflation
assumptions, 185, 185n3, 186, 186n8
shock, 197, 197n30, 197t
Institute of International Finance (IIE), 152
Insurance, 195, 298, 378
companies, 25, 283
deposits, 230, 264
extension of, 186
premium, 94n9, 412t, 444t
sector, 2, 8, 25
See also American International Group
Interbank
borrowing, 249
exposure model, 211–14, 211f, 211nn4–5, 212f, 212n6, 214f, 214n11
exposures, 206, 206n3
“macro” contagion test, 35, 35f, 35n27
markets, 282b
“pure” contagion test, 34–35, 34nn25–26
risk and GOB model of default, 103, 106–12, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t, 110nn20–23, 110t, 111nn24–30
See also London interbank offered rate
Interconnectedness
capital charge and, 263–64, 267
degree of, 263
See also Too-connected-to-fail
Interest cover ratio (ICR), 350–54, 353f
Interest rate
bank-to-bank spread, 108n12
direct risk in, 30–31, 30nn14–15, 31nn16–17
in Europe, 500
indirect risk in, 31
rising, 398, 400
shock and U.K., 347, 348f
short-term, 171, 175
spreads, 106
Internal Ratings Based (IRB), 160n18, 177
International Accounting Standards, 505 International Consolidated Banking Statistics, 213
International Financial Reporting Standards, 13n1, 304n14, 505
International Financial Statistics, 564
International Monetary Fund (IMF)
assessments of, 72n4, 570
focus of, 5–9, 8f
information gaps and quality of, 8–9
initiatives of, 208
methodology of, 5
policies and reports of, 8, 152n4
stress testing at, 1–9, 2f, 3f, 3t, 5f, 6t, 7t, 8f
See also Financial Sector Assessment Program; Global Financial Stability Report
Intesa, 528
Investment banks, 523n20
Ireland
banking in, 283–84, 283n3, 284nn4–6, 285f
contagion risk determinants in, 287t, 291–98, 292n9, 292t, 293n10, 293t, 294f, 295t, 296f, 296t
contagion risk in, 281–84, 282b, 282nn1–2
U.K. and, 283
U.S. and, 283
See also Bank of Ireland
Irish Financial Services Center, 281, 284, 284n5
Italy
banks of, 286b
data on, 155, 576t
iTraxx Crossover, 564
Jain, Sameer, 407
Jančar, Martin, 28b
Jaynes, Edwin T., 510
Jobert, Arnaud, 248
Joint probability of distress (JPoD), 515
banking systems and, 515–16, 516f
BSI and, 522f, 523f, 525–26
BSM and, 520
default and, 414
model, 412t
Jones, Matthew T., 18, 24, 39b
JP Morgan, 181t, 272n16
as BHC, 523, 528
EMBI+, 371f
Kapadia, Sujit, 243
Karolyi, G. Andrew, 291, 301
Kaupthing Bank hf.
background on, 72
in receivership, 72–73, 72n6
Kaupthing Edge, 72n6
Kite network, 205–6, 206f
Klaar, Andres, 112, 112n32
Koenker, Roger, 268
Koeva-Brooks, Petya, 562
Kong, Janet Q., 248
Kovner, Anna, 124
Krackhardt, David, 205–6, 206f
Kullback, Solomon, 492b–493b, 510
La Caixa, 284
Lagrange multiplier test, 541
Landsbanki Íslands hf. annual reports of, 73
assets of, 73–74, 74t
background on, 72
CAR of, 73
Consolidated Financial Statements of, 73
funding gap of, 83, 84t–85t lessons from, 83–87, 86n18
liquidity position and situation of, 74, 74nn14–15, 75t, 79–83, 79n17
liquidity risk of, 74–76, 75t, 761
operations of, 72n12, 73–74
in receivership, 72–73, 72n6
shock within, 79–83, 79n17, 81t–82t
stress test combination of, 79, 79n16, 80t
stress tests with FME shock, 76–79, 77t–78t
summary results of, 83, 86t
Latin America
banks and sovereigns in, 4, 521, 528
financial institutions in, 249, 253, 253t, 257t, 258t, 259t
reforms in, 264n1
Latvia, 155, 156t, 167t–169t Least squares, 145
Lehar, Alfred, 34n26, 231, 240, 264, 267–68
Lehman Brothers, 96, 104, 253, 264, 266, 269, 269f, 523–24
Lending standards, 558–59, 558f
Leverage
corporate, 32, 32n23
implied ratio, 416n13
ratio, 64n20
Levonian, Mark, 406
Li, David X., 271n14
Li, Fuchun, 271n15
Liabilities
book value of, 361
contingent, 214n11, 420–22, 420f, 420n22, 421nn23–25, 422nn26–27
contractual, 361, 362
correlation between assets and, 199
DB and, 196, 196n21
domestic currency, 364, 364f
GOB balance sheet and, 108–9, 108nn15–16, 109nn17–18, 109t
government, 364, 364f
layer of, 384, 384nn42–43, 385t
management of, 380
monetary authority, 364, 364f
reevaluation of, 106
See also Actuarial liabilities; Contingent claims analysis
Likelihood-ratio tests, 541
Linear combinations of ratios of spacing method, 438
Liquidity
cash flow-based tests, 92
contagion, 36, 36n30
crises, 92–93, 92n5
funding, 71, 92
indicators, 23
intragroup, 153, 153n5
as low-frequency-high impact events, 92–93, 92n5
management, 152
market, 71
from outside, 35–36
run, 36n28
shock, 199, 211–12, 211f, 211n4, 212f, 212n6
shortages, 124n2, 131, 131f, 131t
short-term, 71
Liquidity at Risk, 94, 94n10
Liquidity coverage ratio, 94, 97–98
Liquidity Ratio for Credit Institutions, 73n10, 79, 79n16
Liquidity risk, 14
assessment of, 93–94, 93n8, 94nn9–10, 95t
BCBS on, 71n2, 86–87
considerations and motivation for, 92–93, 92n5, 93nn6–7
focus on, 72, 72n4
general concepts of, 92–96, 92n5, 93nn6–8, 94nn9–11, 95f, 95t, 96t
of Landsbanki Íslands hf., 74–76, 75t, 76t
method summary on, 123
shock, 71
solvency risk and, 91–92, 98–99, 99n19
stressed input values and, 441b systemic, 123–32, 124nn1–2, 125t, 126nn3–4, 127f, 128n5, 128n9, 129nn11–12, 130 nn13–16, 130t, 131f, 131t, 132t
tests, 35–36, 36f, 36nn28–30
See also Iceland; Systemic Risk-Adjusted Liquidity
Liquidity stress tests
benchmark scenarios of, 99–100, 99n20, 99t
of BoE, 125t
BU or TD, 94, 95t
data for, 126–28, 127f
design of, 96–100, 96nn12–14, 97n16, 97n18, 98t, 99nn19–20, 99t framework of, 92, 92nn2–3
goal and outcome of, 94
Iceland case study and, 72–87, 72n4, 72n6, 73nn10–12, 74nn14–15, 74t, 75t, 76t, 77t–78t, 79nn16–17, 80t, 81t–82t, 84t–85t, 86n18, 86t
methodological aspects of, 93–94, 93n8, 94nn9–10, 95t
method summary on, 71, 91
modeling steps of, 126, 127f
next-generation, 91–92, 92nn2–3, 94–96, 95f, 96t
reverse, 94, 94n11, 96, 96n14
Seðlabanki on, 73, 73n11
for U.S. banking system, 128, 128n5, 132
See also Iceland
Lithuania, 155, 156t, 167t–169t
Litzenberger, Robert H., 416, 434
Lloyd’s Banking Group, 423n30
Loan loss reserve, 160
Loan portfolio
of Brazilian banking sector, 460t
concentration modeling, 129
corporate, 128, 128n9
of financial institutions, 104–6, 105nn4–7
individual, 128–29
modeling, 109–10, 110nn20–23, 110t
Loans
accounting information on, 45
business, 110, 110nn22–23
classified, 55
consumer, 110, 110nn22–23, 558
credit risk model of, 128–29, 128n9
cross-border banking groups and, 155n10
EU cross-border, 153, 153nn6–7
losses from, 23, 73
NPLs and loss provisions of, 479–80, 480t
performing, 47–52, 50t, 51t, 55, 57t
short term increases in, 48
See also Nonperforming loans
Loan-to-value (LTV), 129, 342
Lo Duca, Marco, 279, 282–83, 286b, 291, 300–301
London Interbank Offered Rate, 124, 436n12
Longevity shock, 197–98, 198f, 198t
Longin, Francois, 301
Longstaff, Francis A., 407
Long Term Capital Management, 264, 274, 391
Loss distribution
for CSFP, 145, 145t
ex ante, 266
ex post, 266
Loss given default (LGD)
of Brazilian banking sector, 468
CESE and, 160, 177, 177t, 181t
PD and, 62–63, 62n8, 63nn9–10
of U.K., 344–46, 346n9, 347t
Lowe, Philip, 515
Lucas, Robert E., 28b
Lucas critique, 28b
Luna, Leonardo, 395
Lütkebohmert, Eva, 63
Macroeconomic assumptions, 556t
Macroeconomic data, 513–14
Macroeconomic developments, 474–75, 474f
Macroeconomic factors, 334
Macroeconomic model, 105n5
BU approach to, 19f, 21–22
credit risk and, 28b
external shock and, 19f
TD approach to, 19f, 21–22, 46n2
Macroeconomic regression, 566–70, 567nn4–7, 568t–569t
Macroeconomic scenarios
in Denmark, 494t, 497–500, 498f, 499f, 499t
of NPLs, 479
Macroeconomic variables, 395–404, 395f, 395nn5–6, 396t, 397n7, 397t, 398f, 401f, 402f, 403f
Macro-financial approach, 4–5, 5f
introduction to, 449–51, 450f
process, 450
Macro Financial Risk, Inc., 367n21
Macro-Financial Risk model (MfRisk), 367, 367n21, 384–85, 384n41
“Macro” interbank contagion, 34, 35, 35f
Macro model, 456–57, 456f, 456nn7–8, 457nn9–11, 457t, 458t, 459f
Macroprudential policy and surveillance (MPS)
contribution approach to, 410, 410n3, 411t
participation approach to, 410, 410n3, 411t
systemic risk in, 410–11, 410n1, 411n4
Macroprudential stress test
alternative scenario of, 548–51, 552t, 553t
analysis of, 531–34, 532nn2–7, 533t–534t, 534f
assumptions and methodology of, 535–38, 535nn8–9, 536f, 537f, 537t
balance sheet expansion and, 543–46, 547f, 548f
baseline scenario of, 534–48, 535nn8–9, 536f, 537f, 537t, 538n10, 538t, 539t, 540f, 540n11, 541f, 541n16, 542f, 543n18, 544f, 545f, 546f, 547f, 548f, 548n19, 549t, 550f
for BHC, 523nn2–7, 532
capital shortfall and, 546–48, 548n19, 549t, 550f
earnings profiles and, 537f, 538–41, 539t, 540f, 540n10, 541f
retained earnings and, 541–43, 541n16, 543n18, 544f, 545f, 546f
securities write-downs and, 538, 538n10, 539t
Maechler, Andrea, 171, 566n2
Mager, Ferdinand, 63
Marginal expected shortfall (MES), 411n4
Mark, Robert, 406
Market
data, 570n11
equity index of Brazil, 105, 105n5
evaluation, 414
funding, 98–99, 99n19
liquidity, 71
returns, 488n12
risk model, 450
stock, 247, 314t, 325t
value, 361
Market-implied capital adequacy ratio, 418–20, 419f, 423
Market-implied capital assessment, 418–20, 419f
Market implied default probability (MIDP), 384
CDS and, 372, 372n27
estimation of, 373
Market price-based approach
comparison of, 3t
operational considerations of, 5, 5f, 6t, 7t
utilization of, 4, 5f
Market prices
of assets, 97–98, 97n18
for CDS, 268
Martinez, Soledad, 153n7
Mathieson, Donald J., 301
MATLAB, 144
Maurer, Martin, 231, 237
Maximum domain of attraction, 417
Maximum likelihood (ML)
estimators, 490
systemic CCA and, 417, 417n18
Maxwell, William, 128
McGuire, Patrick, 213
McLiesh, Caralee, 63
Mean-squared-error, 490
Melchiori, Mario R., 142, 143
Merrick, Andrew, 124
Merrill Lynch, 181t, 523
Merton, Robert C., 4, 247, 271, 271n14, 302, 333, 383–85, 383n38, 384n40, 388, 390, 563b
See also Black-Scholes-Merton model
Merton model, 393, 407, 414, 414n11, 416
MetLife Assurance Limited, 196n21
Milevsky, Moshe, 189n13
Minimum cross-entropy distributor, 492b–493b, 495b–496b
Mitra, Srobona, 72n4
MKMV CreditEdge, 423n30
Moerman, Gerard, 279, 286b, 291, 300–301
Molyneux, Philip, 562
Monte Carlo approach, 93, 103, 106n11, 557
evaluation of, 378–80, 378n34, 379f
implementation of, 377b
simulation, 103, 373t, 374, 376–78, 376n31, 377b, 377nn32–33, 378f
size of, 106n11
Monthly Report on Financial Institutions, 237
Moody’s Investor Services, 107t, 112, 234
Moody’s KMV (MKMV)
data, 247–48, 252, 252t, 264, 268
EDF, 562, 562n1, 563b, 563f, 564f
estimates, 388, 393
framework, 488n9
Moretti, Marina, 476
Morgan Stanley, 272n16, 523
Morgan Stanley Capital International (MSCI), 305, 436n12
Morris, Stephen, 210
Mortgages, 284
delinquent, 555
LTV, 129, 342
real estate, 104n1, 106n10
subprime, 250, 263
MSCI All-Country Europe Index, 305
MSCI All-Country World Index, 305
Multivariate extreme value distribution, 417
Multivariate Generalized AutoRegressive
Conditional Heteroskedasticity approach, 417n20, 439n19
Mutual funds, 237
National Bank of Bankistan (NBB), 24
back-testing and, 27–28, 27f
ranking system of, 27, 27f
step function and, 27, 27f
Nationwide, 423n30
Nelson, Benjamin, 411, 411n4
Net foreign investment, 500
Netherlands, 155, 234
banks of, 125t, 286b, 500, 500n28
contagion risk of, 283
Net stable funding ratio
boundary, 433
measurement, 432–36, 432n3, 434n9, 436f
sources, 94, 97
Network analysis approach
application of, 4, 206–8, 206nn3–4
introduction to, 205–8, 206f, 206nn3–4, 207f
method summary on, 205
operational considerations of, 5, 5f, 6t, 7t
policy reflections on, 207–8
Net worth, 26
Nier, Erlend, 243
Nonbank financial institutions (NBFIs), 5–8
distress of, 514
exposures to, 30
importance of, 237
Nonperforming loans (NPLs)
availability of, 64, 64n16
background on, 474–75, 474f, 475n1
bank-to-bank changes in, 28b, 29, 29n12
Brazilian banking sector, 454, 454n1, 458–63, 461nn13–14, 461t, 462f, 463–64, 467f
calibration of, 158–60, 158n12, 159n13, 159t, 160n14
CAR of, 480–81, 481t
CESE and, 156–60, 158n12, 158t, 159t, 160n14
changes in, 33, 157
data, 475
dependent variable of, 476, 476nn2–4
econometric credit risk model of, 475–78, 476nn2–4, 477n5, 477n7, 477nn9–10
estimation procedure on, 477–78, 477n5, 477n7, 477nn9–10, 478n11
evolution of, 458–59
increase in, 28b, 29, 29n12
independent variable of, 476–77
level of, 45
loan loss provisions of, 479–80, 480t
macroeconomic and financial developments of, 474–75, 474f
macroeconomic scenarios of, 479
method summary on, 473
projection of, 473–74, 479–80, 480t
recovery rate of, 110, 110n22
regression analysis of, 158, 158t, 173, 173t
sensitivity of, 459
shock of larger magnitude to, 47, 52–55, 54t
shock to, 47–55, 50t, 51t, 54t, 56t
stocks and, 160n15
stress test design of, 478–79, 478f
stress test outcome of, 479–81, 480nn13–14, 480t, 481t
Norges Bank, 23, 33b
Northern Rock (United Kingdom)
case, 210, 210n1
failure of, 97
Norway, 155
Notes to the Consolidated Accounts, 86
Oesterreichische Nationalbank, 92–93, 93n8, 136n1
Off-balance sheet
exposures, 232–33, 233f
positions, 26
Office of the Comptroller of the Currency, 128
Office of Thrift Supervision, 128
Ong, Li Lian, 72n4, 99, 171
Option pricing, 247, 333
See also Black-Scholes-Merton model
Ordinary least squares, 255, 462
Organization for Economic Cooperation and Development, 96n12
Out-of-the-money, 522
Overnight indexed swap, 124
Padilla, Pablo, 515
Pagan, Adrian R., 541
Papaganagiotou, Panagiotis, 15, 104
Pazarbasioglu, Ceyla, 8
Pedersen, Lasse H., 130, 410
Pension
funds, 237
model plan for, 190, 191t–192t, 193f–194f, 195t
real plan for, 190, 191t–192t, 193f–194f, 195t
Pesola, Jarmo, 28b
Pickands, James, 417
Pillar 3 reports, 14, 14n3
Pirotte, Hugues, 407
PoDs derived from CDS spreads (CDS-PoDs), 522
Poisson approximation, 137–38, 145, 145t
Poland, 152n4, 155, 156t, 167t–169t
Poon, Ser-Huang, 301
Popov, Alexander, 152–53
Portfolio
banks’, 8, 104–6, 105nn4–7
Brazil’s aggregation bias, 464–66, 465n15, 468f, 469f, 469t, 470t
ex ante, 268n6
ex post, 268n6
of financial institutions, 104
TCTF and incremental, 265–67, 266f
See also Incremental portfolio; Loan portfolio
Portfolio credit risk
of balance sheet-based approach, 14–15
EC and, 486, 487–89, 487n8, 488f, 488nn9–13
improvement of, 489–94, 490nn16–18, 491b–492b, 492b–493b, 494t
information restrictions binding, 488–89, 489f, 489n14
measurement, 485, 489–94, 490nn16–18, 491b–492b, 492b–493b, 493n23, 494t
PLD and, 487–89, 487n8, 488f, 488nn9–13
UL of, 486
Portfolio loss distribution (PLD)
estimation of, 486
portfolio credit risk and, 487–89, 487n8, 488f, 488nn9–13
Portfolio multivariate density (PMD), 486
CIMDO and, 502–4, 503f, 504t
CoPoD, 502–4, 503f, 504t
of Denmark, 502–3, 503f, 504t
Principal component analysis, 388, 397–99, 397t, 398f
Probability
Bernoulli events and, 144, 145t
CreditRisk+ model with known, 138
CreditRisk+ model with nonrandom default, 137
CreditRisk+ model with random default, 138–39, 139n6, 146–47, 146f, 147f
survival, 184–85, 184n2
Probability generation function, 149
Probability Integral Transformation, 494, 516
Probability of default (PD), 271, 271nn12–13
estimation of, 143n19
LGD and, 62–63, 62n8, 63nn9–10
rankings and, 26–28, 26n10, 27f
ratings and, 23
RWA and sensitivity of, 63, 63nn11–12
sovereign risk and, 384, 384nn40–41
stress tests and, 39, 40f, 41f
See also Conditional probability of default; Risk-neutral default
probability Probability of distress (PoD)
of banks, 515, 522
BSMs and, 515, 516f
changes in, 514
sovereign credit risk and, 366
Profits
of banks, 22–23
components of, 23
excess, 160–61, 160t
Projected benefit obligation (PBO), 189
Projected benefit obligation choice of method (PBOcd), 195
Puhr, Claus, 62, 63–64, 67, 95
Quantile regression
CoRisk and, 254–53, 255n11, 268n7
integration of, 268n7
quasi-Internal Ratings Based approach (QIRB)
method, 60
RWA, 63nn15–19, 64, 65f
Quintos, Carmela E., 301
Rawkins, Paul, 112, 112n32
Real estate
assets, 129
mortgages, 104n1, 106n10
prices, 497–500, 499t
See also Commercial real estate; Residential real estate
Reduced-form approach (RA), 488n13
Regression
of assets, 537f
bank, 570–72, 571t
credit, 578t
GDP and financial, 567n7
macroeconomic, 566–70, 567nn4–7, 568t–569t
model, 565–66, 565f, 566n2
See also Quantile regression; Vector error correction model regression
Regression analysis
of NPLs, 158, 158t, 173, 173t
of ROAs, 158, 158t
of sovereign credit risk, 370–74, 370n25, 372nn26–28, 372t, 373t, 374f
Regulatory capital, 24n8
Basel III on, 264
TCTF and, 263
Reiss, Oliver, 142
Required stable funding (RSF)
components of, 433–34
covariance of, 435f
factors, 442t
value of, 434
volatility of, 441b
Reserve management
evaluation of, 378–80, 379f
framework for, 380–81, 380nn35–36, 381n37
sovereign credit risk and, 378–81, 379f, 380nn35–36, 381n37
Residential real estate (RRE)
charge-off rate, 558
losses, 535–36, 537t, 551, 552t
Retirement
benefit assumptions and DB, 201
members and actuarial liabilities, 186, 186nn7–9, 187t, 188t, 201
See also Actuarial liabilities; Defined benefit
Retirement benefit obligation (RBO), 189, 189n14
Return on assets (ROA)
annualized, 532, 532n6
calibration of, 158–60, 158n12, 159n13, 159t, 160n14
CESE and, 156–60, 158n12, 158t, 159t, 160n14
changes in, 157
regression analysis of, 158, 158t
Rigabon, Roberto, 301
Riley, David, 112, 112n32
Ring-fencing
absence of, 152
full, 153–54, 155, 155t
impact of, 151–54, 152n4, 152nn1–2, 153nn5–7
method summary on, 151
near-complete, 153–54, 155, 155t
no, 153–54, 155, 155t
partial, 153–54, 155, 155t
scenarios and CN, 160–63, 160n15, 160nn17–19, 161n20, 162f, 163f
types of, 153–54, 155, 155t
Risk
balance sheet-based approach and portfolio, 14–15
Brazil’s bank ratings and, 103, 115–21, 117nn35–36, 118t, 119t, 120t
capital charge, 267–68, 268n6
credit shock and concentration, 30
data on financial sector, 562–64, 563b, 563f, 576t
direct interest rate, 30–31, 30nn14–15, 31nn16–17
of foreign banks, 527–28
FX, 196, 196t
FX direct, 31–32, 31nn18–19, 32nn21–22
FX indirect, 32–33, 32nn22–23
GOB model of default and interbank, 103, 106–12, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t, 110nn20–23, 110t, 111nn24–30
indicators, 390–95, 391f, 393f, 394f, 395f570n11
indirect interest rate, 31
measures of CCA, 388–95, 389f, 390n3, 391f, 392f, 393f, 394f 395f
mitigation, 380n37
model of market, 450
profile, 414
sensitivity and solvency stress tests, 60–61, 60n4, 61f
simulation model of banks, 106–8, 106nn10–11, 107t, 108nn12–16, 109nn17–18, 109t
TCTF, 229–30
transfer data, 213–14, 214f
See also Contagion risk; Credit risk; Debt at risk; Liquidity risk; Ultimate risk basis
Risk Assessment Model for Systemic Institutions (RAMSI), 60, 93, 99n19, 130n13, 423
RiskMetrics CreditGrades model, 407
Risk-neutral default probability (RNDP), 247, 366, 375n30
CCA and, 393, 393f, 394f 395
CDS and, 422, 422n27
Risk transfer
algorithm with, 212–13, 213n7
algorithm without, 212
data, 213–14, 214f
presence of, 212, 218–23, 222f, 222n14, 223f,224f
transmission of, 218–23, 222f, 222n14, 223f, 224f
Risk-weighted assets (RWA), 160
accounting information on, 45
adjustment of, 60
calculation of, 480
for credit risk, 63
decline of, 47, 47n3
name concentration and, 63–64, 63n14
QIRB, 63nn15–19, 64, 65f
sensitivity of asset correlations, 63, 63n13
sensitivity of PDs to, 63, 63nn11–12
translation of, 63nn15–19, 64, 65f
value of, 28b, 29, 29n12
Roberts, Tom, 243
Rockinger, Michael, 301
Rohatinski, Željko, 152n4
Romania, 155, 156t, 159, 167t–169t, 171
Royal Bank of Scotland (RBS), 423n30
Russia, 155, 156t, 158n12, 159t, 167t–169t, 171
capital controls in, 365
crisis in 1998, 391
Santander, 528
Santander Chile, 256, 260n14
Santander U.K., 423n30
Sargan test, 477, 477n10
Satellite model, 19f
Schleifer, Andrei, 63
Schmeider, Christian, 60, 62, 63–64, 67, 95–96, 99
Schmeider, S. Philipp, 63
Schmitz, Stefan W., 101
Schoar, Antoinette, 124
Schoenmakers, John, 142
Scholes, Myron S., 4, 247, 271, 286b, 302, 333, 388, 563b
See also Black-Scholes-Merton model
Schumacher, Liliana, 15, 94, 104
Schwartz, Eduardo S., 407
Schwartz information criterion, 399
ScotiaBank, 256, 528
Securities
mortgage-backed, 104n1
prices, 240, 240n13
write-downs, 538, 538n10, 539t
Seðlabanki
on króna, 73
on Liquidity Ratio for Credit Institutions, 73n10, 79, 79n16
on liquidity stress tests, 73, 73n11
receivership by, 72–73, 72n6, 73nn10–11
on solvency risk, 73, 73n10
stress test combination of Landsbanki Íslands hf. and, 79, 79n16, 80t
Segoviano, Miguel A., 489, 492b–493b, 494, 510, 515, 518, 528
Senior Loan Officer Opinion Survey of Bank Lending Practices, 558–59, 558f
Serbia, 155, 156t, 167t–169t
Shannon, Claude E., 509–10
Shapley values, 268n6
Shared National Credits Review, 128
Sheldon, George, 231, 237
Shin, Hyun Song, 210
Shock
balance sheet, 48
to banking system, 47, 52, 53t
to banks, 47, 52, 53t, 55
common, 440, 441b
DB, asset, 195–96, 196n20, 196t
DB and liability, 196, 196n21
external, 19f
firm-specific, 440
FME, 76–79, 77t–78t
house price, 347–49, 349f
income, 346f, 347
inflation, 197, 197n30, 197t
interest rate, 196–97, 196t, 197t
within Landsbanki Íslands hf., 79–83, 79n17, 81t–82t
of larger magnitude to NPLs, 47, 52–55, 54t
liabilities and, 196, 196n21
liquidity, 199, 211–12, 211f, 211n4, 212f, 212n6
liquidity risk, 71
longevity, 197–98, 198f, 198t
to multi-assets, 199
to NPLs, 47–55, 50t, 51t, 54t, 56t
risk transfer, 232–33, 233f
short-term, 48
single-factor, 556
transmission of, 478, 478f
U.K. interest rate, 347, 348f
volatility, 441b
Sibert, Anne, 74–76
Sistema Especial de Liquidaçáo e Custodia, 457
Sklar, Abe, 417n20, 519
Slack, Graham, 18, 24, 39b
Slovakia, 155, 156t, 159, 167t–169t
Slovenia, 155, 156t, 159, 167t–169t
Small- and medium-sized enterprises, 486–87, 487n6
SNL Financial, 532n5, 534
Social networks, 205
Societe Generale, 274, 528
Solé, Juan, 205
Solnik, Bruno, 301
Solvency, 33
financial crisis (2007–2008) and, 72, 72n4
of firm, 414
See also Contagion risk
Solvency risk
liquidity risk and, 91–92, 98–99, 99n19
method summary on, 123
modeling of, 129–30, 129nn11–12, 129t, 130nn13–16
modeling results of, 130–32, 131f, 131t, 132t
Seðlabanki on, 73, 73n10
systemic, 123–32, 124nn1–2, 125t, 126nn3–4, 127f, 128n5, 128n9, 129nn11–12, 130nn13–16, 130t, 131f, 131t, 132t
value of, 362–63, 362nn8–9
Solvency stress tests, 35
architecture of, 64–66, 65f
credit risk and, 62
dimensions of, 60
ECB and, 60, 60n3, 97
execution of, 66–67, 68f
framework of, 59–61, 60nn1–4, 61f, 66, 67f
FSI and, 66
income and, 61–62, 62nn6–7, 62t macro scenario of, 66
methodology of, 61–68, 61n5, 62nn6–7, 62t, 63nn11–14, 64nn15–20, 65f, 66f 66n21, 67f, 68f
method summary on, 59
next-generation of, 60, 60n2
risk sensitivity and, 60–61, 60n4, 61f, scope and, 60–61, 61f
stress test metric and, 61, 61n5
technical overview of, 64–67, 65f, 66f 66n21, 67f, 68f
use of, 60–61, 61f
Soramaki, Kimo, 243
Souissi, Moez, 240, 264, 267–68
Southeastern Europe (SEE), 156t, 158n12
Souto, Marcos R., 104, 108, 110, 112n31
Sovereign assets, 362–64, 362n5, 362nn8–9, 363f,383
Sovereign balance sheet
adjusted, 378n34
CCA of, 364–66, 364f, 364nn10–11, 365n12, 365nn16–18
consolidation of, 364, 364f, 364nn10–11
seniority of, 364–65, 365n12, 365nn16–17
value, volatility and, 365–66, 366n18
Sovereign credit risk, 103–6, 111, 111nn25–29
degree of, 367–74, 367nn21–23, 368f–369f, 369n24, 370n25, 370t, 371f, 372nn26–28, 372t, 373t, 374f
DtD and, 366–70, 368f–369f, 369n24, 370t
hypothetical, 373t, 373–80, 374f, 374t, 375n30, 375t, 376n31, 377b, 377nn32–33, 378f: 378n34, 379f
indicators of, 366–67, 366n19
PoD and, 366
premium, 366–67
regression analysis of, 370–74, 370n25, 372nn26–28, 372t, 373t, 374f
reserve management and, 378–81, 379f, 380nn35–36,381n37
Sovereign default, 103–6, 361b
Sovereign risk
approach, 359–64, 361b, 361n4, 362nn5–9, 363f
banks and, 334
with CCA, 359–61, 360n1
concept, 362, 362nn5–7, 363f
corporate to, 361b
government guarantees/support of, 334–35
measurement of, 334
method summary on, 359
PD and, 384, 384nn40–41
Sovereign Wealth Funds (SWF), 250
Spain, 576t
banks of, 230, 274, 284, 286
Chile and, 250
exposures of, 487n6
Spearman’s rank correlation, 367n23
Special Liquidity Scheme, 342n3
Spillover risk, 281
copula-based, 279
Diebold-Yilmaz, 279
within EU, 308–9, 308t, 309n26
frequency of, 309
of global banking system, 305–8, 306t–307t, 308n22, 308t
SRISK, 412t
Stafford, Erik, 130
Stand-alone subsidiarization
pros and cons of, 153–54, 155, 155t
scenarios, 160t, 161
Standard and Chartered, 528
Standard Chartered Bank, 423n30
Standardized Approach, 60
Standard & Poor’s (S&P), 128
Starica, Catalin, 301
State-price density, 416, 434
Stock
market indices, 325t
markets, 247, 314t
NPLs and, 160n15
Stolz, Stephanie, 476
Straetmans, Stefan, 301
Stress Tester 3.0
approaches to, 21–22, 40–42
assumption with, 24n7
file overview and process of, 18–24, 19b, 19f
20t, 21n2, 23nn5–6, 24nn7–8
guide to, 18–21, 19f, 20t, 21n2
results of, 22–23, 22nn5–6
Stress tests
actual data and, 18
approaches, models and methods of, 1–5, 2f, 3t, 5f
assumptions in, 18, 41
Brazilian banking sector and, 463–70, 465n15, 467f, 468f, 469f, 469t, 470t, 471t
on CAR, 37, 37f
challenges, 15
CIMDO and procedure for, 496–97
concepts of, 92
contingency planning and, 87
CoPoD and procedure for, 496–97
for DB, 190–99, 191t–192t, 193f–194f, 195nn18–19, 195t, 196nn20–21, 196t, 197n30, 197t, 198f, 198t
design consistent scenarios, 37–38, 37f, 38f,38n32
factor models and, 42
file overview and process of, 18–24, 19b, 19f, 20t, 21n2, 23nn5–6, 24nn7–8, 41–42
global financial crisis and, 1
at IMF, 1–9, 2f, 3t, 5f, 6t, 7t, 8f
method summary on, 17
metric of, 61, 61n5
modeling feedback effects of, 39–40
NPLs and design of, 478–79, 478f
NPLs and outcome of, 479–81, 480nn13–14, 480t, 481t
PDs and, 39, 40f, 41f
proposed, 125t
scenarios, 36–40, 37f, 38f 38n32, 39b, 40f, 41f
SRL model framework and, 441b
strengths and weaknesses of, 17–18
variables in, 22–23, 22nn5–6
See also specific approaches
Strike price, 416n15
Stulz, Rene M., 291, 301
Suda, Yuko, 243
Summer, Martin, 34n26, 231
Sunirand, Pojanart, 515
Superintendencia de Bancos e Instituciones Financieras, 237, 253
Supervisory Capital Assessment Program, 60, 60n1, 449–51, 531–32, 534f
Sweden, 155, 576t
Swinburne, Mark, 476
Swiston, A ndrew, 559
Switzerland, 567, 576t
Systemic CCA
application of, 419f, 422–28, 423nn29–32, 424f, 425f, 426f 426n33, 427t
estimation and specification of, 414–18, 415t, 416nn12–16, 417nn17–20, 418n21
expected loss from, 414–18, 415t, 416nn12–16, 417nn17–20, 418n21
extensions of, 418–22, 419f, 420f 421nn23–25, 422nn26–28
framework, 409–13, 410n1, 410n3, 411nn4–5, 411t, 412t, 413n6
measurement of, 335
methodology of, 413–18, 413n8, 414n9, 415t, 416nn12–16, 417nn17–20, 418n21
method summary on, 409
ML and, 417, 417n18
model, 412t
Systemic Expected Shortfall
MES and, 411n4
model, 412t
Systemic risk
within banks, 111–12, 111n30, 116–21, 117nn35–36, 118t, 119t, 120t
liquidity, 123–32, 124nn1–2, 125t, 126nn3–4, 1277, 128n5, 128n9, 129nn11–12, 130 nn13–16, 130t, 131f, 131t, 132t
in MPS, 410–11, 410n1, 411n4
solvency, 123–32, 124nn1–2, 125t, 126nn3–4, 1277, 128n5, 128n9, 129nn11–12, 130 nn13–16, 130t, 131f, 131t, 132t
Systemic Risk-Adjusted Liquidity (SRL)
application of, 440–45, 440n22, 441nn23–24, 442f, 442n58, 442t, 443f, 444t
approach, 440
characterization of, 432–33, 432n1, 432n3, 433n4
methodology, 433–40, 433n5, 434nn6–11, 435f, 436f 436n12, 437nn13–16, 438f, 438n17, 439nn18–21, 441b
method summary on, 431
model, 431–33, 432n1, 432n3, 433n5
model framework and stress tests, 441b
Systemic Risk Monitor (SRM), 60
System or portfolio DD (DD-system), 563
Tajvidi, Nader, 417, 438
Tarashev, Nikola, 239, 240, 264, 264n3, 267–68
Tawn, Jonathan, 301
Termination rate shocks, 198
Through-the-cycle, 64, 64n18
Tieman, Alexander, 282, 286b, 566n2
Too-big-to-fail, 230
Too-connected-to-fail (TCTF)
analysis of Chilean banking system and, 237–39, 238t, 239t, 240f, 241t
assessment of, 230, 274–75, 274n17, 274n19
balance sheet-based network analysis and, 230–33, 231f, 231n2, 231nn4–5, 232f, 233f
banking systems, 234, 237t
calculations, 268–72, 268n7, 269f, 269nn8–9, 270f, 271nn12–15
capital charge and, 263, 264n3, 265–68, 266f, 268n6
characterization of, 230
example of, 272–74, 272n16, 272t, 273t
incremental portfolio approach and, 265–67, 266f
other approaches and, 267–68, 268n6
regulatory capital and, 263
risk, 229–30
societal losses and, 265
summary method on, 229, 263
two-bank example and, 265
Too-many-to-fail, 230
Top-down (TD)
approach to macroeconomic model, 19f,21–22, 46n2
liquidity stress tests, 94, 95t
Troubled Asset Relief Program (TARP), 534, 543
Tsatsaronis, Kostas, 239, 240, 264, 264n3, 267–68
Tsomocos, Dimitrios P., 515
Turkey, 152n4, 155, 156t, 167t–169t, 171
UBS, 525, 527
Udell, Gregory, 152–53
Ukraine, 155, 156t, 158n12, 159t, 167t–169t, 171
Ultimate risk basis (URB)
data, 213–14, 213n10, 214f, 227, 227t–228t
for foreign claims, 213n10
Unemployment, 500–501
Unexpected loss (UL)
of portfolio credit risk, 486
term, 486n1
Unicredito, 528
United Kingdom (U.K.), 196n21, 357–58, 576t
banking sector and EL, 422–27, 423nn29–32, 424f, 425f, 426f, 427t
banking systems in, 234, 240
banks of, 286 b
CCA and, 333–34, 337–38, 350f, 353–56, 355b, 356f, 357f
Chilean banking system and, 250
Contagion risk of, 283–84
corporate and financial linkages within, 349–56, 350f, 350n10, 351f, 352f, 353f 354f, 355b, 356f
debt at risk and, 337–38, 344
during global financial crisis, 338–40, 338f, 339f, 340f, 341f
household and financial linkages within, 328–49, 338f, 339f, 340f, 341f, 342f 342n3, 343f, 343nn4–5, 344nn7–8, 344t, 345f–346f, 347n9, 347t, 348f, 349f 350f
ICR and, 350–54, 353f
interest rate shock and, 347, 348f
Ireland and, 283
LGD of, 344–46, 346n9, 347t
unsecured debt of, 349, 350f
United States (U.S.), 195n18, 196n21
banking sector, 440–45, 441b, 441nn23–24, 442f, 442n25, 442t, 443f, 444n55, 444t
banking systems in, 234, 240, 254f, 263
banks, 230, 286b
business week principle utilized by, 93
Contagion risk of, 283–84
debt, 555n20
financial environment, 128, 128n5, 132
financial institutions in, 257t, 258t, 272n16, 272t
GDP of, 457n9
Ireland and, 283
liquidity stress tests and banking system of, 128, 128n5, 132
Upper, Christian, 231
U.S. dollar, 456
Costs, 93, 93n7, 189n15
measurement in, 364n10
Value-at-risk (VaR)
Brazilian credit, 466–70, 470t, 471t
components of, 94, 437
credit, 135, 146–47, 146f, 147f
as incoherent, 439n20
levels, 112
measures, 377n33
models, 42, 377n32
ValueCalc Banking System Risk Modeling
Software, 104, 104n3, 124n1
ValueCalc Global Portfolio and Credit Risk, 104, 104n3
van Deventer, Donald, 404, 407
van Lelyveld, Iman, 152
Variables
CoPoD and explanatory, 490–93, 493n23, 494t
GDP, 20
macroeconomic, 395–404, 395f, 395nn5–6, 396t, 397n7, 397t, 398f, 401f, 402f 403f, NPLs and dependent, 476, 476nn2–4
NPLs and independent, 476–77
in stress tests, 22–23, 22nn5–6
Vasicek, Oldrich, 271n14
Vasicek model, 107–8, 108n13
Vassalou, Maria, 286b, 563b
Vector autoregression (VAR)
CCA and, 388, 399–400
specifications, 456
Vector error correction model regression, 577, 578t
Vesala, Jukka, 248, 279, 282–83, 286b, 291, 300–301
Virolainen, Kimmo, 28b
Volatility
of ASF, 441b
of RSF, 441b
to shock, 441b
sovereign balance sheet and, 365–66, 366n18
See also Chicago Board Options Exchange Market Volatility Index (VIX)
von Peter, Götz, 213
Vulpes, Guiseppe, 248
Wachovia, 104, 523
Washington Mutual (WaMu), 104, 523, 527
Watson, Geoffrey S., 541
Watts, Duncan, 243
Wells, Simon, 231, 237, 243
Wells Fargo, 272n16
White, Alan, 107–8, 108n13
Wilson, Thomas, 454
Wong, Eric, 101, 130n13
World Bank, 63, 160, 570
World Economic Outlook, 158, 535, 557
Worldscope, 350n10
Worms, Andreas, 231
Wu, Liuren, 422
Xing, Yuhang, 286b, 563b
Yao, James Y., 301
Zhou, Hao, 410
Zhu, Haibin, 410
Z-scores, 23, 23nn5–6, 247