Stress Tests for the Austrian FSAP Update 2007: Methodology, Scenarios and Results

This paper presents the methodology, scenarios and results of the stress tests conducted for the update of Austria’s Financial Sector Assessment Program (FSAP) in 2007. The focus of the paper lies in particular on the following two macroeconomic stress scenarios: (a) a regional shock in Central, Eastern and Southeastern Europe hitting Austrian banks through their large exposure in the region, and (b) a global downturn in economic activity causing a deterioration of Austrian banks’ domestic loan portfolios, whereby in the second scenario, contagion risk within the Austrian interbank market was also taken into account. Stress test calculations were performed by the OeNB for all Austrian banks (top-down approach) as well as by the six largest Austrian banking groups for their respective exposure (bottom-up approach). The paper describes the methodologies for scenario construction and the stress tests themselves and then discusses the scenarios as well as the stress test results in detail, including a comparison of the two approaches. Finally, the paper presents the results of additional sensitivity stress tests for credit risk emanating from foreign currency lending, for the most important categories of market risk and for liquidity risk. Overall, the update of Austria’s FSAP 2007 confirmed the results of previous stress testing exercises, in particular for the large Austrian banking groups that show considerable shock resistance mainly as a result of their generally sound capital buffers and high profitability. JEL classification: G10, G21, F23