The European Banking Authority (EBA) stress tests, which aim to quantify banks’ capital shortfall in a potential future crisis (adverse economic scenario), further stimulated an academic debate over systemic risk measures and their predictive/informative content. Focusing on marked based measures, Acharya et al. (2010) provides a theoretical background to justify the use of Marginal Expected Shortfall (MES) for predicting the stress test results, and verify it on the first stress test conducted after the 2007-2008 crises on the US banking system (SCAP, Supervisory Capital Assessment Program). The aim of this paper is to further test the goodness of MES as a predictive measure, by analysing it in relation to the results of the 2014 European stress tests exercise conducted by EBA. Our results are strongly dependent on index used to capture the systemic distress event, whereby MES, based on a global market index, does not show association with EBA stress test, by contrast to F-MES, which is based on a financial market index, and has a significant information and predictive power. Our results may carry useful regulatory implication for the stress test exercises.

Pederzoli, C. e C., Torricelli. "Systemic risk measures and macroprudential stress tests An assessment over the 2014 EBA exercise" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2015. https://doi.org/10.25431/11380_1197707

Systemic risk measures and macroprudential stress tests An assessment over the 2014 EBA exercise

Pederzoli, C.;Torricelli, C.
2015

Abstract

The European Banking Authority (EBA) stress tests, which aim to quantify banks’ capital shortfall in a potential future crisis (adverse economic scenario), further stimulated an academic debate over systemic risk measures and their predictive/informative content. Focusing on marked based measures, Acharya et al. (2010) provides a theoretical background to justify the use of Marginal Expected Shortfall (MES) for predicting the stress test results, and verify it on the first stress test conducted after the 2007-2008 crises on the US banking system (SCAP, Supervisory Capital Assessment Program). The aim of this paper is to further test the goodness of MES as a predictive measure, by analysing it in relation to the results of the 2014 European stress tests exercise conducted by EBA. Our results are strongly dependent on index used to capture the systemic distress event, whereby MES, based on a global market index, does not show association with EBA stress test, by contrast to F-MES, which is based on a financial market index, and has a significant information and predictive power. Our results may carry useful regulatory implication for the stress test exercises.
2015
Luglio
Pederzoli, C.; Torricelli, C.
Pederzoli, C. e C., Torricelli. "Systemic risk measures and macroprudential stress tests An assessment over the 2014 EBA exercise" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2015. https://doi.org/10.25431/11380_1197707
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