The purpose of this paper is to promote the use of Bayesian model averaging for the design of satellite models that financial institutions employ for stress testing. Banks employing 'handpicked' equations - while meeting standard economic and econometric soundness criteria - risk significantly...

In this paper, we construct a structural model to determine the costs of a bank rescue considering bail-outs and bail-ins. In our model, a government assumes the equity stake under unlimited liability upon abandonment of the original equity holders. The model determines an abandonment trigger...