Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27669
Authors: 
Mager, Ferdinand
Schmieder, Christian
Year of Publication: 
2008
Series/Report no.: 
Discussion Paper, Series 2: Banking and Financial Supervision 2008,17
Abstract: 
Stress testing has become a crucial point on the Basel II agenda, mainly as Pillar I estimates do not explicitly take portfolio concentration into account. We start from the credit portfolio of the German pension insurer being a cross-sectional representation of the German economy and subsequently compose three bank portfolios corresponding to a small, medium and large bank. We apply univariate and multivariate stress tests both by using the Internal Rating based (IRB) model and by a model that additionally allows for variation of correlation. In a severe multivariate stress scenario based on historical data for Germany IRB capital requirements increase by more than 80% with little differences between the credit portfolios. If stress testing is additionally applied to correlation, the Value-at-Risk increases by up to 300% and portfolio differences materialize.
Subjects: 
Credit Portfolio
Exposure concentration
Stress Testing
Basel II
Economic Capital
JEL: 
G21
G28
Document Type: 
Working Paper

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