The 2008/2009 global crisis highlighted the vulnerabilities and inter-dependencies in the financial system including the global over-the-counter (OTC) derivatives markets, where significant counterparty credit risk prevails. In this paper, we deal with risk under Basel III banking regulation and...

The purpose of this paper is to examine Austrian foreign trade and estimate the country’s export function. The analysis is based on the gravity model of trade in the log-log form, augmented by additional variables in order to control for the impact of institutions on decision-making. Our panel...

Most traditional Value at Risk models neglect market liquidity risk and hence only consider the market price risk (i.e. risk associated with holding a certain position). In order to fully capture the market risk associated to holding and trading a position, we first define market liquidity risk,...

The recent financial crisis emphasised the need for effective financial stability analyses and tools for detecting systemic risk. This paper looks at assessment of banking sector resilience through stress testing. We argue such analyses are valuable even in emerging economies that suffer from...

We use data on loan loss provisions and total loans over the period spanning 1995 until 2009 to estimate a stress testing model for the Luxembourg banking sector. The sample encompasses the recent global crisis and covers a period in which the average probability of default of the Luxembourg...

In this paper we study the impact of the Basel III liquidity regulations, namely the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), on the bank lending channel in Luxembourg. For this aim we built, based on individual bank data, time series of the LCR and NSFR for a...

The stress testing literature abounds with reduced-form macroeconomic models that are used to forecast the evolution of the macroeconomic environment in the context of a stress testing exercise. These models permit supervisors to estimate counterparty risk under both baseline and adverse...

This paper introduces a model for stress testing of probability of default of individuals. The model rests on assumption that the individual defaults if his savings fall below zero. The probability of default is then described as a function of several macroeconomic indicators such as wages,...

This paper focuses on how to calibrate models used to stress test the most important risks in the banking system. Based on the results of a verification of the Czech National Bank’s stress testing methodology, the paper argues that stress tests should be calibrated conservatively and slightly...

We study how the Basel III regulations, namely the Capital-to-assets ratio (CAR), the Net Stable Funding Ratio (NSFR) and the Liquidity Coverage Ratio (LCR), are likely to impact the banks? profitabilities (i.e. ROA), capital levels and default. We estimate historical series of the new Basel III...