Český finanční a účetní časopis 2018(2):43-59 | DOI: 10.18267/j.cfuc.512

Approaches to stress testing for regulatory purposes by institutions using the IRBA method

Michal Kováč
Vysoká škola ekonomická v Praze, Fakulta financí a účetnictví, katedra měnové teorie a politiky, nám. W. Churchilla 4, 130 67 Praha 3.

The paper deals with the stress test of institutions using IRBA method for determining the capital requirement. The VEC model was used to quantify the links between the macroeconomic variables and the risk parameters of PD, EAD and LGD. In addition to the construction of the VEC model itself, the paper presents the process of selecting appropriate macroeconomic variables and aggregating risk parameters. To design the stress scenario, the method of maximum penalizing the risk parameters of PD was used because of the failure to prove the links between the macroeconomic variables and the EAD and LGD parameters. Empirical analysis of individual variables and subsequent quantification of capital for stress test purposes was performed on the real portfolio of the retail client.

Keywords: Stress test; Retail clients; VECM; IRBA.
JEL classification: C53, G32

Published: July 1, 2018  Show citation

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Kováč, M. (2018). Approaches to stress testing for regulatory purposes by institutions using the IRBA method. Czech Financial and Accounting Journal, 2018(2), 43-59. doi: 10.18267/j.cfuc.512
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