Prepared by Valentina Flamini.
A 75 percent haircut on collateral, and a 25 and 50 percent provisioning rate on new NPLs in domestic and foreign currency respectively are assumed.
The 100 percent depreciation is a benchmark used to calibrate the sensitivity. Hence, the assumed 10 percent depreciation would yield to 6 percent of FX performing loans becoming non-performing.
The components of the combined shock are calibrated in the same way as the individual shocks described in paragraph 5.
For methodological details see Cerutti, Eugenio, Stijn Claessens, and Patrick McGuire, 2012, “Systemic Risks in Global Banking: What can Available Data Tell Us and What More Dare are Needed?” BIS Working Paper 376, Bank for International Settlements. Banks exposures and spillover estimates were provided by Camelia Minoiu and Paola Ganum (RES).
Bank recapitalizations as well as other remedial policy actions (e.g., ring fencing, monetary policy, etc.) at the host and/or home country level are not assumed.
Panamanian banks have a more limited integration in the network analysis as they merely transmit the stress in international banks, rather than also being subjected to stress scenarios of losses in their asset values.
Spillovers from exposures to the USA increased significantly compared to the earlier (2013Q3) estimates of 0.29 percent of GDP because the latest simulations require advanced economy banking system to hold 8.5% capital ratio to be considered as “adequately capitalized” (in line with Basel III) compared to 6% in previous estimates. For any given shock to their balance sheets, this higher required minimum capital leads to a greater deleveraging by the banking system that receives the shock, and therefore to a higher funding risk exposure of the borrower country, in this case Costa Rica.
Based on consolidated claims on Costa Rica of BIS reporting banks—excluding domestic deposits of subsidiaries of these banks in Costa Rica.
Total credit to the non-bank sectors in Costa Rica is calculated by adding IFS local (both domestic and foreign owned) banks’ claims on non-bank borrowers and BIS reporting banks’ direct cross-border claims on non-bank sectors (BIS Locational Banking Statistics Table 6B).
Spillovers from exposures to large European banks are lower compared to the earlier (2013Q3) estimates of 4.04 percent of GDP because foreign claims decreased significantly, more than offsetting the deleveraging effect caused by the higher minimum capital requirement.