ACPR-Banque de France
Information about this author at RePEc
NBER Working Papers and Publications
|January 2017||Backtesting European Stress Tests|
with Thomas Philippon, Pierre Pessarossi: w23083
We provide a first evaluation of the quality of banking stress tests in the European Union. We use stress tests scenarios and banks’ estimated losses to recover bank level exposures to macroeconomic factors. Once macro outcomes are realized, we predict banks’ losses and compare them to actual losses. We find that stress tests are informative and unbiased on average. Model-based losses are good predictors of realized losses and of banks’ equity returns around announcements of macroeconomic news. When we perform our tests for the Union as a whole, we do not detect biases in the construction of the scenarios, or in the estimated losses across banks of different sizes and ownership structures. There is, however, some evidence that exposures are underestimated in countries with ex-ante weaker b...