Title page
Contents
Abstract 2
Non-Technical Summary 3
1. Introduction 5
2. The Risk-to-Buffer framework 9
2.1. Stress test in requirement calibration 10
2.2. Generating scenarios related to the level of risk 11
2.3. A capital loss for each risk level 11
2.4. From capital losses to requirements 12
3. Illustration: the non-linear macroeconomic model 13
3.1. The econometric model 14
3.2. Estimation of the macroeconomic model 15
4. Illustration: an application on European banks 17
4.1. A indirect stress test model 17
4.2. Bank losses under different scenarios 19
4.3. Calibration of requirements 21
5. Conclusion 22
References 24
Table 1. Reduced form stress test model 20
Figure 1. Illustration of the methodology 12
Figure 2. Impulse responses to a Housing shock 17
Figure 3. Impulse responses to an Output shock 18
Figure 4. Low risk, Median Risk and High Risk scenarios - level deviations 21
Figure 5. CET1 projected losses and requirements 22