Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/120786
Authors: 
Hirtle, Beverly
Kovner, Anna
Vickery, James
Bhanot, Meru
Year of Publication: 
2014
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 663
Abstract: 
The CLASS model is a top-down capital stress testing framework that projects the effect of different macroeconomic scenarios on U.S. banking firms. The model is based on simple econometric models estimated using public data and also on assumptions about loan loss provisioning, taxes, asset growth, and other factors. We use this framework to calculate a projected industry capital gap relative to a target ratio at different points in time under a common stressful macroeconomic scenario. This estimated capital gap began rising four years before the financial crisis and peaked at the end of 2008. The gap has since fallen sharply and is now significantly below precrisis levels. In the cross-section, firms projected to be most sensitive to macroeconomic conditions have higher capital ratios, consistent with a 'precautionary' view of bank capital.
Subjects: 
capital
stress testing
JEL: 
G21
G17
G01
Document Type: 
Working Paper

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