We develop a structural model for valuing bank balance sheet components such as the equity and debt value, the value for the government when the bank is operated by private shareholders including the present value of a possible future bailout, the bailout value incurred by the government...

This paper documents the extension of the system-wide stress testing framework of the ECB with the insurance sector for a more thorough assessment of risks to financial stability. The special nature of insurers is captured by the modelling of the liability side and its loss absorbing capacity of...

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...

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...

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...

The purpose of this paper is to compare the cyclical behavior of various credit impairment accounting regimes, namely IAS 39, IFRS 9 and US GAAP. We model the impact of credit impairments on the Profit and Loss (P&L) account under all three regimes. Our results suggest that although IFRS 9 is...

The purpose of this paper is to investigate the main drivers of the change in the credit risk provisions at a portfolio level for the banks that have been subject of the 2018 EBA stress tests. Therefore, we perform a holistic review of the drivers of the three-year projections of credit losses....

We assess the effects of regulatory caps in the loan-to-value (LTV) ratio using agent-based models (ABMs). Our approach builds upon a straightforward ABM where we model the interactions of sellers, buyers and banks within a computational framework that enables the application of LTV caps. The...

This paper evaluates the resilience benefits of borrower-based macroprudential policies-such as LTV, DSTI, or DTI caps-for households and banks in the EU. To that end, we employ a further developed variant of the integrated micro-macro simulation model of Gross and Población (2017). Besides...

We develop a theoretical model that features a business cycle-dependent relation between output, price inflation and inflation expectations, augmenting the model by Svensson (1997) with a nonlinear Phillips curve that reflects the rationale underlying the capacity constraint theory (Macklem...